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The Shadows of the Crisis: Past and Future
The switch rougly parrallels the period of increasing domination of the American consciousness by the electronic media and the need for the print media to follow suit in order to survive. I have been reading the Atlantic Monthly for 40 years and one only has to look at the most recent redesign of that once treasured publication to see measure the cost.
Our time horizons and our attention spans are too short and our whole outlook too self centered. J.D Salinger is 90 years old today and, having outgrown being Holden Caulfield, we have become the opposite: shallow, materialistic, greedy, shortsighted.
Financial Meltdown: Good Luck, Bad Luck, Who Knows?
For another, it is hard to be philosophic in the face of a loss, especially a great loss.
The mention of philosophy in this context suggests that it might be time to cite the Greek philosopher, Epictetus, i.e.,
"It's not what happens to you, but how you react, that matters."
Financial Meltdown: Good Luck, Bad Luck, Who Knows?
For another, it is hard to be philosophic in the face of a loss, especially a great loss.
Rough Economic Seas Toss Many Boats, Including Oil Price
People will invent all sorts of schemes to satisfy greed. That is the original, fundamental bubble. JK is right.
Federal Reserve, What Do You Have to Hide?
But my guess is that federal reserve employees are federal employees and at least the chairman and members of the board of governors who are not there by virtue of being presidents of regional banks are appointed by federal officials.
The mandate of the federal reserve is regulatory and that is a function of government. If the mandate of the federal reserve were to promote the interest of banks, then the argument that it is not part of government would hold more water.
Here is one opinion that allowing Lehman Brothers to go bankrupt not a mistake. The failure of Lehman Brothers alerted the global financial community of the nature and the severity of the problem at a time when it was (hopefully) still manageable. If the fraud being perpetrated on the world by the financial community had been allowed to continue indefinitely, the consequences could only have been worse, perhaps even catastrophic.
These are, of course, only the opinions of an amateur observer and participant in the financial markets. I am not leveraged, conservatively invested and down 30% for the year which is a lot better than many of the newly minted millionaires in the financial world.
What if the Credit Crunch Is Just a Symptom?
-- People cannot continue to consume at an ever increasing rate unless their wages keep pace. Since wages have not kept pace, problems were inevitable.
--The securitization of mortgages and all of the related derivitaves had the effect of expanding the money supply without a commensurate increase in the value of the asset base. The imbalance meant that problems were inevitable.
-- The value of the financial industry is said to be only about 4% of GDP. Yet, at its peak, the financial industry represented more than 20% of the value of the S&P. This disjunction meant that problems were inevitable.
-- The increase in value of the financial industry in relation to everything else was driven largely by the vast opportunities resulting from the creation of a global economy and the boundless and irresponsible greed of corporations and individuals to reap the rewards for their own private benefit rather than the general welfare. Problems were innevitable.
-- Basking in the seemingly limiltess potential of globalization, securitization and expansion of the money supply without pain or consequence, our elected and appointed officials, all beneficiaries of the windfall, either missed the boat, were asleep at the watch, or just took the money and ran before the ship went down or, perhaps, all three.
-- The trillions of dollars that have been lost will not be restored until meaningful relationships between value, reward and cost are re-established.
--
Saudis Try to Re-Invent the Internal Combustion Engine
Obama's 2.5 Million Job Stimulus: We Need a Scalpel, Not a Shotgun
Energy Investing: Scenarios for a Turnaround
Perhaps the best indication of what the future holds is that President Elect Obama's rating from the public on conduct of the transition to the presidency is at 80%.
My bet is that a very thoughtful, disciplined and highly competent Obama administration will steer the way through the obvious difficulties to a more secure and more sustainable future.
Energy Investing: Scenarios for a Turnaround
The Fed's Potentially Very Bad Policy
The argument against this is that it would make lenders more reluctant to provide mortgage debt and, consequently, mortgage interest rates would rise.
I think this argument against altering of mortgage terms in bankruptcy is undercut by the fact that the threat of altered terms in bankruptcy would have the effect of forcintg everyone in the financing chain to be more responsible. And, if everyone is more responsible, then the incidence of bankruptcy will decline, which means that there is less risk for lenders and mortgage rates should not increase.
The second argument against allowing mortgage terms to be altered in bankruptcy is that it will cut marginal borrowers out of the market.
But, it is in the national interest that respoonsible marginal borrowers obtain mortgage financing and we already have very successful federal and state run programs designed specifically for this purpose. This argument is just blowing smoke.
The argument for equal treatment before the law also favors the alteration of mortgage terms in bankruptcy. Well to do people can go bankrupt and have the terms of frivolous assets altered in bankruptcy. Marginal borrowers who may have no significant assets other than their homes cannot have the terms of their mortgages altered.
This is just another example of how our culture of rapacious and relatively capitalism favors the rich at the expense of the middle class and the poor.
The best way to level the playing field and restore responsibility to the mortgage lending market is to allow the alteration of mortgage terms in bankruptcy.
Change and Predicting the Market Bottom
Why Didn't We Stop the Market's Chain of Events?
"The assumption of rationality behind the question raised is undermined by the fact that neither greed nor fear can be governed by rationality and that, consequently, the question does not apply to the world that drives markets. We need regulation that understands that greed and fear are what drives markets, not rationality."
Why Didn't We Stop the Market's Chain of Events?
The question assumes that life is essentially a rational process, that sufficient information is always available to all participants so that they can make rational judgments based on the information available, and that the consequence of past and current events is (if not perfect) at least highly predictable.
In fact, it appears to me that none of these assumptions is correct. Rationality is a vital treasure, but is no more than a thin veneer that overlays the struggle for life. Bill Clinton is a good example. George W. Bush is a good example of the abandonment of that veneer. Barack Obama gives every indication that he represents its restoration. Never-theless, it remains a veneer and, until, it is clearly established that rationality is in the ascendancy rather than decline, there will be great uncertainty about the future.
The lack of information upon which to make rational judgments is obvious. Those who were in the best position to understand what was going on (Henry Paulson and Ben Bernanke et al) continually told us that the sub prime mortgage problem would be "contained." And few people in the investment world had an interest in revealing to their customers the extent of the potential problems. They were all making too much money. Why kill the goose that layed the golden egg. The few who did smell a rat (John Paulson) were content to just make money or were hushed up (Peter Schiff, Nuriel Roubini).
When we judge what the future is going to be like, it would be nice to think that we could make rational judgments free of past experience. But, it would also be terrifying. To preserve sanity, we must assume that the future will be pretty much like the past. And "the past" no longer means 1,000 or even 100 years ago. Egged on by CNBC, MSNBC et al it means at most what happened last year or even last quarter. And, wince everyone was making a lot of money, why should we expect anything different?
If both Richard Rubin and Phil Gramm abandon both common sense and history in order to embrace deregulation, rationality is clearly not in charge and the financial system is a train wreck in the making.
The assumption of rationality is not sufficient to prevent it from happening. We need regulation that understands the irrational nature of things.
Economic Distress and Geopolitical Risks
Today, we have a gigantic Saudi oil tanker hijacked by a couple of dozen Somali pirates and there doesn't seem to be anything that all the firepower in the world can do about it. This is ridiculous. We need a world of law and order that provides opportunity for all people and limits the degree to which pirates of all stripes from the Red Sea to Wall Street, Red Square and everywhere in between plunder the world for their own benefit.