[quote]Zap Branigan wrote:
LIFTICVSMAXIMVS wrote:
Bernanke is is going to destroy the investments of millions of people.
Who wants to invest in a shitty rate and a shitty currency?
You probably blame the firemen for getting the furniture wet when they put out a fire.[/quote]
Central bankers are the benevolent fire fighters, and greedy businessmen are the arsonists, right Keynes?
[quote]Headhunter wrote:
We will resemble Germany in the late 30s.[/quote]
Hell, I wish ;D
Not a good analogy, HH…
Germany was in better shape than we are.
The Ant, the Grasshopper, and the Subprime Securities
by Bill Walker
An ant laboriously tunneled into MIT and carried around calculus books of 100 times her own body weight, earning an IT degree and an MBA. Then she secured a business loan and worked on her startup corporation 16 hours a day, 24/7, all summer long. Her company made software that cured cancer, wiped out computer viruses, and walked your dog, all for $39.95 with free updates.
A grasshopper was blown into Florida State by a hurricane, and majored in UV Absorption and Socializingology, drinking and singing with the other grasshoppers. Eventually he was dragged off the beach and forcibly graduated with a degree in Orthoptera Studies. He spent the summer at a cushy job in an air-conditioned office in a large bank and spent every evening singing in karaoke bars. Once a week he would take a pile of nonperforming mortgages, chop them up into tranches, and mark half of the tranches “AAA” while chirping cheerily. Then he would sell them to the other insects at high prices.
The ant was putting together the 401(k) options for her ant employees�?? retirement accounts when she noticed the grasshopper�??s subprime offerings hiding among real bonds in bond funds, banks, brokerages, and as prizes in cereal boxes. The ant carefully avoided buying any subprime debt, “AAA” or not. The ant and her employees put all their savings into bonds and stocks from companies that made good products that other insects really wanted.
When winter came, the subprime tranches that the grasshopper had sold all withered away and turned to dust, even the ones he had marked “AAA.” The grasshopper�??s bank, the banks that had bought securities from them, and the Carlyle Group�??s hedge fund all had empty larders�?� actually more than empty, because they owed more than they had.
So the Federal Reserve printed up hundreds of billions of dollars and Treasury bonds and gave them to the grasshopper in exchange for the dried-up dust of the subprime securities, because the grasshopper�??s bank was “too big to fail.” The grasshopper was also allowed to borrow from the Fed at a special cheap rate that no one else could get, “to give him liquidity.” The grasshopper went on to his next scheme, which was to securitize tranches of nonperforming time-payment agreements for large-screen TVs (these were called “subprimetime securities”). The grasshopper became wealthier and wealthier, and his offshore corporate shells lived happily ever after in the Cayman Islands.
The ant and all her employees went bankrupt because their customers couldn�??t afford to buy software or CAM machines when gasoline cost ten dollars a gallon. The ant couldn�??t get a loan to start another company because of the credit crunch created by the grasshopper. The ant retirement accounts were so reduced in value from inflation that they could never retire, and the ants spent their last years working as the grasshopper�??s servants with no medical insurance.
The grasshopper looked down from his office tower at the scurrying ants carrying heavy burdens far below. Then the grasshopper knew:
“It is best to be the one who prints the money, not the one who works.”
Or to put it another way, in a planned economy, always be friends with, or actually be, the one with the gun.
Why work if your serfs do it for you and actually applaud you for “putting out the fire”.
And yes I´d blame the firemen if they started the fire in the first place.
[quote]Zap Branigan wrote:
LIFTICVSMAXIMVS wrote:
Bernanke is is going to destroy the investments of millions of people.
Who wants to invest in a shitty rate and a shitty currency?
You probably blame the firemen for getting the furniture wet when they put out a fire.[/quote]
OK now that is funny stuff
[i]Economic View
It’s Hard to Thaw a Frozen Market
By TYLER COWEN
Published: March 23, 2008
REAL estate bubbles have burst before, without bringing such trouble to the financial system. What is distinctive today is the drying up of market liquidity - the inability to buy and sell financial assets - caused by a lack of good information about asset values. The American economy is suffering from an old conundrum: that liquidity is there when you don’t need it, but missing when you do. The results have been a form of financial gridlock.
If you think that traders have been well informed of late, take another look at the wild path of Bear Stearns shares: A year ago, the stock was selling for $170 a share. At the close on March 14, just before the deal by which Bear Stearns was to be bought by JPMorgan Chase, Bear had a book value of $80 a share �?? and a share price of $30. The JPMorgan transaction, arranged two days later, valued the company at about $2 a share. Since then, the shares have been trading above $2, which in part reflects the possibility of the deal breaking up.
Every step of the way, the pricing of the stock has surprised the market �?? and yet Bear Stearns is a firm with a lengthy history, not an Internet start-up or a biotech whose value is based on a new but untried wonder drug.
To understand the depths of the current crisis, let’s go back to an apparently unrelated episode in economic thought: the socialist calculation debate. Starting in the 1920s, Ludwig von Mises, the leader of the so-called Austrian School of Economics, charged that socialism was unable to engage in rational economic calculation. Without market prices, he reasoned, no one knows how much economic resources are worth.
The subsequent poor performance of planned economies bore out his point. For instance, the Soviet Union did a poor job of producing consumer goods and developing innovative industries. In the absence of well-functioning markets for capital goods, these mistakes festered, rather than being rectified by the independent judgments of individual entrepreneurs.
The irony is that the supercharged capital markets of the American economy are now - at least temporarily - in a somewhat comparable position. Starting in August, many asset markets lost their liquidity, as trading in many kinds of junk bonds, mortgage-backed securities and auction-rate securities has virtually vanished.
Market prices have been drained of their informational value and thus don�??t much reflect the “wisdom of crowds,” as they would under normal circumstances. Investors are instead flocking to the safest of assets, like Treasury bills.
The absence of trading is a big problem. Financial institutions have been stuck holding illiquid assets, whose value cannot be easily determined. Who wants to lend to the institutions holding them? No wonder there is a credit crisis and a general attitude of wait and see.
This gridlock is especially harmful because leverage is so high, and financial institutions are so interconnected through swaps and loans. Institutions that rely so heavily on debt are precarious and need up-to-date information about valuations. When they don’t have it, markets freeze up. This is what has taken policymakers by surprise and turned a real estate crash into a much bigger financial problem.
You might wonder why asset prices don’t simply fall enough so that someone buys them and trading picks up again. First, many bank managers would rather postpone the day of reckoning; why seek “fire sale” prices when you might lose your job for doing so? Second, only so many financial institutions have the size and expertise to buy up low-quality assets in large quantities. One scary fact about the Bear Stearns situation is how few buyers were waiting in line.
So what now? Regulators should apply capital requirements consistently to the off-balance-sheet activities of financial institutions. This will limit dangerous leverage, contain contagion effects and make the system less dependent on the steady flow of good information.
In the shorter run, economists are generally in three camps when it comes to strategies for recovery.
The fundamentalists argue that housing prices need to fall, and rapidly, so that mortgage-backed securities can be valued more accurately. Then trading can resume and financial gridlock will be undone. Advocates of a bailout, by contrast, argue that this process would be a disaster. In their view, the solvency problems are too great and the market is too skittish for the foreseeable future, so the government needs to buy up mortgage securities to prevent catastrophe.
The third group, the “wait and see” faction, finds the first two alternatives unpalatable. This group hopes that if the Fed pumps enough liquidity into banks, the passage of time will improve market information, ease worries and lead to a resumption in asset trading.
NO matter your point of view, real-world events are likely to intervene and force an outcome. The Fed and the Treasury have been forced into a mode of emergency response and daily improvisation, not long-term planning. Sooner or later, trading in the illiquid assets is likely to resume, but the major question in all of this is the eventual cost.
That cost won’t be measured only in terms of bailouts and guarantees. The longer this crisis mode drags on, the more the entire reputation of American capital markets will suffer.
Tyler Cowen is a professor of economics at George Mason University.[/i]
[quote]BostonBarrister wrote:
Economic View
It’s Hard to Thaw a Frozen Market
By TYLER COWEN…
[/quote]
Summary:
There is plenty of credit available if you can get a bank to give it to you.
[quote]orion wrote:
The Ant, the Grasshopper, and the Subprime Securities
by Bill Walker
An ant laboriously tunneled into MIT and carried around calculus books of 100 times her own body weight, earning an IT degree and an MBA. Then she secured a business loan and worked on her startup corporation 16 hours a day, 24/7, all summer long. Her company made software that cured cancer, wiped out computer viruses, and walked your dog, all for $39.95 with free updates.
A grasshopper was blown into Florida State by a hurricane, and majored in UV Absorption and Socializingology, drinking and singing with the other grasshoppers. Eventually he was dragged off the beach and forcibly graduated with a degree in Orthoptera Studies. He spent the summer at a cushy job in an air-conditioned office in a large bank and spent every evening singing in karaoke bars. Once a week he would take a pile of nonperforming mortgages, chop them up into tranches, and mark half of the tranches “AAA” while chirping cheerily. Then he would sell them to the other insects at high prices.
The ant was putting together the 401(k) options for her ant employees�?? retirement accounts when she noticed the grasshopper�??s subprime offerings hiding among real bonds in bond funds, banks, brokerages, and as prizes in cereal boxes. The ant carefully avoided buying any subprime debt, “AAA” or not. The ant and her employees put all their savings into bonds and stocks from companies that made good products that other insects really wanted.
When winter came, the subprime tranches that the grasshopper had sold all withered away and turned to dust, even the ones he had marked “AAA.” The grasshopper�??s bank, the banks that had bought securities from them, and the Carlyle Group�??s hedge fund all had empty larders�?� actually more than empty, because they owed more than they had.
So the Federal Reserve printed up hundreds of billions of dollars and Treasury bonds and gave them to the grasshopper in exchange for the dried-up dust of the subprime securities, because the grasshopper�??s bank was “too big to fail.” The grasshopper was also allowed to borrow from the Fed at a special cheap rate that no one else could get, “to give him liquidity.” The grasshopper went on to his next scheme, which was to securitize tranches of nonperforming time-payment agreements for large-screen TVs (these were called “subprimetime securities”). The grasshopper became wealthier and wealthier, and his offshore corporate shells lived happily ever after in the Cayman Islands.
The ant and all her employees went bankrupt because their customers couldn�??t afford to buy software or CAM machines when gasoline cost ten dollars a gallon. The ant couldn�??t get a loan to start another company because of the credit crunch created by the grasshopper. The ant retirement accounts were so reduced in value from inflation that they could never retire, and the ants spent their last years working as the grasshopper�??s servants with no medical insurance.
The grasshopper looked down from his office tower at the scurrying ants carrying heavy burdens far below. Then the grasshopper knew:
“It is best to be the one who prints the money, not the one who works.”
Or to put it another way, in a planned economy, always be friends with, or actually be, the one with the gun.
Why work if your serfs do it for you and actually applaud you for “putting out the fire”.
And yes I´d blame the firemen if they started the fire in the first place.
[/quote]
When we discuss economics, I agree with most or all of your posts. This one is exceptional! Well done!
[quote]LIFTICVSMAXIMVS wrote:
BostonBarrister wrote:
Economic View
It’s Hard to Thaw a Frozen Market
By TYLER COWEN…
Summary:
There is plenty of credit available if you can get a bank to give it to you.[/quote]
Yes, that’s pretty much it - bank runs and credit crises have large psychological components. But they can have extremely deleterious economic effects.
Gotta love the academic pedantry in the field of economics.
orion and LIFITCUS:
You should like these excerpts from McCain’s latest speech on the bubble - well, as much you’ll like any of the politicians’ responses:
http://campaignspot.nationalreview.com/post/?q=YWZiYWFkOThkZDllNzIzMjZhMWZlMzEzZjE0OTkxZDQ=
[quote]BostonBarrister wrote:
orion and LIFITCUS:
You should like these excerpts from McCain’s latest speech on the bubble - well, as much you’ll like any of the politicians’ responses:[/quote]
Good to see McCain is finally addressing the speech of Ron Paul.
As much as I agree with the common sense response to the housing bubble – don’t spend more than one can afford – it is a basic observation that gives us no new information to work with.
He fails to understand the human condition or the basic economic laws that make central planning dangerous.
[quote]LIFTICVSMAXIMVS wrote:
BostonBarrister wrote:
orion and LIFITCUS:
You should like these excerpts from McCain’s latest speech on the bubble - well, as much you’ll like any of the politicians’ responses:
Good to see McCain is finally addressing the speech of Ron Paul.
As much as I agree with the common sense response to the housing bubble – don’t spend more than one can afford – it is a basic observation that gives us no new information to work with.
He fails to understand the human condition or the basic economic laws that make central planning dangerous.
I think as long as he gets the point across that the government has no business protecting people from the consequences of bad economic decisions with the money from people who actually invested cautiously and wisely he is doing fine.