Re: Mayday! Mayday!

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Today was as sweet as Tupelo honey.


Posted by: Walt Someguy | Link to this comment | 10- 3-08 7:17 PM
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I always find that blind hatred makes ignorance go down easier. J. P. Morgan rules us from beyond the grave.


Posted by: John Emerson | Link to this comment | 10- 3-08 7:21 PM
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I think this thread's about 10 hours too late, LB. The financial markets move in real-time.


Posted by: Brock Landers | Link to this comment | 10- 3-08 7:22 PM
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Yeah, without the advice of the Unfoggedtariat, I've already lost my children's college fund.


Posted by: Walt Someguy | Link to this comment | 10- 3-08 7:23 PM
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So, our timely commentary that might have changed things six hours ago will now be wasted? All those lurking financial wizards were disappointed at the lack of guidance from unfogged comments.


Posted by: LizardBreath | Link to this comment | 10- 3-08 7:24 PM
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I blame dsquared.


Posted by: | Link to this comment | 10- 3-08 7:24 PM
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Two rounds of L'Internationale for the post.


Posted by: md 20/400 | Link to this comment | 10- 3-08 7:24 PM
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6 was me.


Posted by: foolishmortal | Link to this comment | 10- 3-08 7:25 PM
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I blame angle brackets.


Posted by: md 20/400 | Link to this comment | 10- 3-08 7:25 PM
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Odds on the Dow being below 9000 by Halloween?


Posted by: apostropher | Link to this comment | 10- 3-08 7:27 PM
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5: Exactly. Earlier today, we could have made a difference.

More seriously, I just meant that I'm not sure there's anything left to talk about. Everything's already been said, it's just buried deep in other threads.


Posted by: Brock Landers | Link to this comment | 10- 3-08 7:27 PM
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Yeah, but at least this moves the conversation away from my entire failure to accurately remember the TV shows I watched as a child, I was probably reading something and not paying proper attention,


Posted by: LizardBreath | Link to this comment | 10- 3-08 7:29 PM
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11: Rage springs eternal.


Posted by: Walt Someguy | Link to this comment | 10- 3-08 7:30 PM
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Dsquared had a solution six years ago.

Please note the guy telling me "John, I'm not sure that's helpful" at the end of the comment thread.


Posted by: John Emerson | Link to this comment | 10- 3-08 7:31 PM
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I think JP Morgan is actually sort of on our side this time. They scraped together enough money to buy WaMu rather than letting it fall through to the FDIC.

Of course, I think we're all fucked, at least economically speaking. I'm going to get canned food and cash on the way home, and ammo tomorrow.


Posted by: water moccasin | Link to this comment | 10- 3-08 7:31 PM
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I thought it was good news that Wachovia found a buyer without government support - but the market doesn't seem impressed. Doesn't Wells Fargo's offer suggest that things might not be that screwed up?
Why did the market suck today?


Posted by: | Link to this comment | 10- 3-08 7:31 PM
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Eyeballing the chart, it looks like the Dow is roughly where it was when Bush took office. (The S&P looks well below.)


Posted by: Walt Someguy | Link to this comment | 10- 3-08 7:32 PM
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I think the 3-month futures closed at 10,594 today, so I'd say relatively low.


Posted by: Brock Landers | Link to this comment | 10- 3-08 7:33 PM
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First, angle brackets. Then, ankle bracelets. The progress of decline is clear. And all because of a late thread.


Posted by: eb | Link to this comment | 10- 3-08 7:33 PM
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I'm trying to decide whether I'm more disgusted at the Democrats for caving on this or caving on Iraq. Though in neither case was there enough resistance to even consider it a proper caving.


Posted by: apostropher | Link to this comment | 10- 3-08 7:33 PM
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16: You didn't clap hard enough. Tinkerbell died.


Posted by: Walt Someguy | Link to this comment | 10- 3-08 7:33 PM
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Onion solution, ripped off from Dsquared.


Posted by: John Emerson | Link to this comment | 10- 3-08 7:33 PM
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From the other thread: James, you need to explain how the study you linked suggests rampant borrower fraud. It doesn't seem to contradict in any meaningful sense the report that I linked (except to describe a different class of predatory lending victims.)


Posted by: | Link to this comment | 10- 3-08 7:33 PM
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18 to 10. People with free access to good data could get you real stats here. And of course by "relatively low" I'm talking about market expectations.


Posted by: Brock Landers | Link to this comment | 10- 3-08 7:34 PM
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16 and 23 were me.


Posted by: politicalfootball | Link to this comment | 10- 3-08 7:35 PM
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I'm not sure James actually believe that borrower fraud or minority homeownership were major factors. I think that borrowers and minority homeowners just piss him off regardless.


Posted by: John Emerson | Link to this comment | 10- 3-08 7:36 PM
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Yeah, this thread is too little too late, I'm sorry to say. But nobody ever heeds the early warning signs. I anticipate another bailout thread well before the 20th of January.


Posted by: Mary Catherine | Link to this comment | 10- 3-08 7:38 PM
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Apo, could you give me the ten-word version of why this is so upsetting to you? (Or link to it if someone else has already written it.) It strikes me as a good solution. (For an admittedly strained value of "good", admittedly. Amputating a leg can be a good solution when it's gangrened.)


Posted by: Brock Landers | Link to this comment | 10- 3-08 7:39 PM
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Admittedly.


Posted by: Brock Landers | Link to this comment | 10- 3-08 7:39 PM
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Dsquared saw the early warning signs in 2002 or so. But he also has said that there's no real way to protect yourself against a bubble breaking. "The market can stay irrational longer than you can stay solvent." You can know for sure that a bubble will pop, but have no idea when.


Posted by: John Emerson | Link to this comment | 10- 3-08 7:41 PM
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It's at times like this that I miss a good swimming or fashion post. Oh, swimmers aren't that sexy; long-distance runners are sexier. Ew, the shoes are okay, but what's with that handbag? The strap is way too long! Honestly.

What's wrong with the bailout? $700 billion: they just wanted a big number. I really don't know; ignorant peasant territory here, alas.


Posted by: parsimon | Link to this comment | 10- 3-08 7:43 PM
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Several days ago I expressed the sentiment that Krugman should mount a coup. Tonight , I extend that duty: Mr. Squared, someone else's country needs you. Put aside your petty concerns and assume the burden great men have borne since Alexander.


Posted by: foolishmortal | Link to this comment | 10- 3-08 7:44 PM
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Dude at work bought 1300 shares of Washington Mutual today at 8 cents a share today. He's convinced that's a good deal. I fail to understand why.


Posted by: Spike | Link to this comment | 10- 3-08 7:45 PM
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23

From the other thread: James, you need to explain how the study you linked suggests rampant borrower fraud. It doesn't seem to contradict in any meaningful sense the report that I linked (except to describe a different class of predatory lending victims.)

It suggests that the typical foreclosure is not of some hardworking but naive homeowner who was steered to a high cost mortgage instead of the low cost mortgage he could have paid.

And do you really consider busted speculators to be predatory lending victims?


Posted by: James B. Shearer | Link to this comment | 10- 3-08 7:46 PM
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I'm not Apo, Brock, but: very few people say that it will work, since it does nothing to correct the underlying problems and may not even deal the immediate emergency. Very few people think it's a good idea to trust someone from Goldman Sachs to hand out money with both fists. It still looks as though a lot of the malefactors will be held harmless while everyone else has to suck it up. This will almost certainly kill Obama's chances of heading anything more than an emergency caretaker government. And the shitty moron Republicans will run on this and defeat a few Democrats because the Democrats were "responsible" and supported Bush's rescue plan, when the Republcians didn't.

The Paulson bill was horrible. The Democratic counterproposal was a considerable but not enormous improvement. The first proposal voted down was worse than the Democratic plan. This plan may be worse yet, though still not as bad as the Paulson plan.

And the Democrats have made only the most timid of initiatives, and have let Republicans run the show.


Posted by: John Emerson | Link to this comment | 10- 3-08 7:51 PM
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the ten-word version of why this is so upsetting to you?

Not in ten words, no. But basically, the last 20-30 years have been a systematic transfer of wealth from the middle class to the upper class. And now I'm watching a massive transfer of bad debt from the upper class to the middle class. After this administration took the federal debt from five trillion to ten trillion dollars in just eight short years. What they're handing over to Henry Paulson to do with as he pleases is your and my health care reform money.

There was never any discussion of paying for this through taxes hikes on the wealthy and on financial transactions, or cutting the military, or anything else. Just more of the same drown the government in debt to prevent social programs that has been every GOP administration's stock in trade since 1981.


Posted by: apostropher | Link to this comment | 10- 3-08 7:51 PM
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33: it only cost him about $100, and not very long ago at all it would have cost about $78,000. How's that not a good deal? (Unless he was buying it for investmetn purposes, and not as decoration. Then it might not have been a good deal.)


Posted by: Brock Landers | Link to this comment | 10- 3-08 7:51 PM
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33: Well, it's a hundred bucks. If it lets him get more entertainment from reading the financial news for the next three months, maybe it's worth it?


Posted by: water moccasin | Link to this comment | 10- 3-08 7:51 PM
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26

I'm not sure James actually believe that borrower fraud or minority homeownership were major factors. I think that borrowers and minority homeowners just piss him off regardless.

Fraudsters and deadbeats. And you just hate banks and think they intentionally made billions in bad loans as part of some evil scheme the benefits of which are obscure.


Posted by: James B. Shearer | Link to this comment | 10- 3-08 7:53 PM
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You can still buy WaMu stock?


Posted by: Walt Someguy | Link to this comment | 10- 3-08 7:54 PM
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I think the 3-month futures closed at 10,594 today, so I'd say relatively low.

What were 3-month futures three months ago?


Posted by: apostropher | Link to this comment | 10- 3-08 7:55 PM
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36: I do hear that, but the real concern was that just letting this crisis drag, potentially to eventual meltdown, could eat a whole hell of lot more than just $700 billion of your health care reform money. I'm guessing you think that risk was overblown. But I'm not sure why.


Posted by: Brock Landers | Link to this comment | 10- 3-08 7:55 PM
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I blame angle brackets.

What the hell did *I* do?

Thread boot: So now we'll see what happens when you give the Secretary of the Treasury who is also the former head of Goldman-Sachs, $700 B of taxpayer dollars.

Aha! But I figured it out earlier this week (when I said we ought to pass the bailout just for the entertainment value): what's the discounted value of 700 billion in five years? Well, if Paulson is a clueless tool who invented this scam, it stands to reason he isn't going to do anything, and the Democrats have no clue, then it is obvious that the discounted value of 700 billion is effectively zero.

Ergo: you pass the thing for the entertainment value because that's all anyone is going to get out of it.

max
['Desperate times require desperate jokes.']


Posted by: max | Link to this comment | 10- 3-08 7:56 PM
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There was never any discussion of paying for this through taxes hikes on the wealthy and on financial transactions, or cutting the military, or anything else. Just more of the same drown the government in debt to prevent social programs that has been every GOP administration's stock in trade since 1981.

It's not like the government could raise $700B in a week by taxing the wealthy or cutting military spending or anything else. They were always going to have to borrow the money up front and pay it back later. So how we're paying for it is yet to be decided.


Posted by: water moccasin | Link to this comment | 10- 3-08 7:56 PM
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41: That's a good question, and I don't know the answer, but I'm willing to guess that whatever they were, those who took the "under" won the bet.


Posted by: Brock Landers | Link to this comment | 10- 3-08 7:57 PM
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And you just hate banks and think they intentionally made billions in bad loans as part of some evil scheme the benefits of which are obscure.

Dude, the people making and flipping the loans, and packaging and selling the resulting securities, have been making shitloads of money. The motivation of the banks may be obscure, but that's because banks don't have motivations. The motivations of the people making the decisions that led to this mess are perfectly transparent.


Posted by: LizardBreath | Link to this comment | 10- 3-08 7:59 PM
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James, you seem obsessed with borrowers and minorities. It just seems to make you happy to blame them. You don't really seem to think that they were a major cause, but you want to make absolutely sure that they get their share of blame.

But creditors call all the shots, never debtors, and no lender was fooled by a debtor. Lenders are normally pretty rigorous; they frequently turn down loans from viable borrowers. and they're good at rating borrowers. But they voluntarily got sleazy and there was complicity all the way to the top. The sleazy lenders found sleazy middlemen to recruit sleazy borrowers, and a fair number of innocents got caught. The middlemen mostly walked away with their commissions, and we're rescuing the lenders.


Posted by: John Emerson | Link to this comment | 10- 3-08 7:59 PM
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just letting this crisis drag

This plan is not set up to succeed. It just buys banks a little more time. There were a world of different approaches that were never even considered. At root, this is still the Paulson plan with a bunch of googaws stuck on the side.


Posted by: apostropher | Link to this comment | 10- 3-08 8:02 PM
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James, your mely of hyper-rationality and brute prejudice should be pickled and put in a museum. the banks were not victims of crafty lenders.


Posted by: John Emerson | Link to this comment | 10- 3-08 8:03 PM
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"meld"


Posted by: John Emerson | Link to this comment | 10- 3-08 8:03 PM
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44: They don't need to raise it in a week. But if they didn't do it now, I don't have any faith they'll do it later. Maybe I'll be pleasantly surprised.


Posted by: apostropher | Link to this comment | 10- 3-08 8:05 PM
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Brock, the thing is that the plan doesn't directly solve the problem, which is that no one knows which banks are insolvent, so no one will invest in them. Given that it doesn't solve the problem, we're stuck with hoping that investors think it solves the problem, which puts us entirely at the mercy of market psychology.


Posted by: Walt Someguy | Link to this comment | 10- 3-08 8:06 PM
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LB, you know nothing about music bailouts.


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 8:06 PM
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52: or at least, we think it does. Maybe it will solve the problem!

Deep.


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 8:07 PM
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At root, this is still the Paulson plan with a bunch of googaws stuck on the side.

Nice image.

It's been striking me that, while I hate to engage in a general hatred of Congress, I do wish that Ted Kennedy were around. Why I think he'd have the clout to put something together and generate momentum for it I don't really know, but it seems to be a function of such influence; while Obama has quite a bit, he's not a senatorial heavyweight. Of course this was all supposed to begin in the House, anyway.


Posted by: parsimon | Link to this comment | 10- 3-08 8:09 PM
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Don't be bitter, Sifu.


Posted by: Walt Someguy | Link to this comment | 10- 3-08 8:10 PM
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53: Both true. Also, 70's westerns.


Posted by: LizardBreath | Link to this comment | 10- 3-08 8:10 PM
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I just l-o-o-o-o-v-e the way economists strut around being scientific and expert and arrogant 99% of the time, telling you how it is and sneering at you, but when something big like this comes along they say "Bubbles are psychological, so we can't understand them". It's like the other social sciences are a trash bin for them to toss their failures into.


Posted by: John Emerson | Link to this comment | 10- 3-08 8:11 PM
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while I hate to engage in a general hatred

Face it, Parsi: you just don't have what it takes to be a hater.


Posted by: Mary Catherine | Link to this comment | 10- 3-08 8:13 PM
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I'm sorry I called you a fascist, LB, because I know how fascists hate that.


Posted by: John Emerson | Link to this comment | 10- 3-08 8:13 PM
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And you just hate banks and think they intentionally made billions in bad loans as part of some evil scheme the benefits of which are obscure.

Why are the benefits obscure? Back in the days when they were fairly tightly regulated, banks (lenders) made money by selling mortgages to good credit risks and charging them interest. WHOA. The need to lend good risks only prevented any massive rise in housing prices.

The creation and exploitation of derivatives allowed the lenders to shift to a business model whereinb each loan became immediately profitable in a way that a given loan under old system of lending wasn't. Therefore the banks' incentives changed and credit-worthiness ceased to be a concern and turning over as many loans as possible (that is creating credit) drove profits. That in turn drove the increase in housing prices and we have a positive feedback loop, since issuing new loans on the same old houses became even more profitable due to the runup in housing prices.

Poor people (that is, bad risks) got suctioned into this scheme because the Nice White People needed people to unload their old urban/suburban houses on to allow the Nice White People to move to gated exurbs far away from the cities. White flight as profitable land flipping scheme.

Unfortunately for the Nice White People, those exurban houses are way too far away to survive expensive gas, the bad risks who got the old houses have their own issues, and anyways, the whole scheme was scam so now the Nice White People with holdings in bank stocks have been taking the losses. All of it depended on the ability of banks to create credit in well in excess of economic growth.

max
['Your correlation is backwards.']


Posted by: max | Link to this comment | 10- 3-08 8:13 PM
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So, on the bailout, let me just say that I can tell you for sure that the credit markets (which are hardly primarily domestic) being frozen has serious and immediate consequences for things everybody here cares about, and, whether or not this is a perfect or even a good solution, a lot of people working really hard on things that y'all, progressives that you are, regard as unalloyed positives are breathing a very deep sigh of relief tonight.

Shorter me: trust Barney Frank not to be that much of an asshole, please?

Alternate me: I won't say anything about any of this because it's none of your business.

Shorter shorter me: Christ, listen to DeLong just this once. He does the math!

Alternate shorter shorter me: that'll never work.

Oh well.


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 8:14 PM
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40

You can still buy WaMu stock?

It has been delisted from the NYSE but still trades on the pink sheets. See here . This is normal in this sort of case. At some point the bankruptcy court will officially wipe them at which point I think trading will stop but this won't happen for some time.


Posted by: James B. Shearer | Link to this comment | 10- 3-08 8:17 PM
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62: Yeah, I buy that argument exactly far enough to remain an ignorant, frightened peasant rather than an infuriated, torch-and-pitchfork-wielding peasant. And to feel like a sucker for buying it at all. Which I nonetheless do. Kinda.


Posted by: LizardBreath | Link to this comment | 10- 3-08 8:18 PM
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Maybe this is the right place to ask my question that went unanswered the other day: is it safe to buy a house yet?


Posted by: Brock Landers | Link to this comment | 10- 3-08 8:18 PM
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None of those people have any confidence that this will work, nor does Krugman. It's a sort of Hail Mary, at best. All of them could think of a variety of better plans which were politically impossible. They were politically impossible because a.) the Republicans are mentally ill swine and b.) the Democrats are nerveless, jellified, and often in the pocket of finance.

To me this thread isn't about what should have been done today anymore, it's more about what we should expect for the future. The worst case is another Great Depression. The best case seems to be Japanese stagnation.


Posted by: John Emerson | Link to this comment | 10- 3-08 8:19 PM
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65: Are you going to keep your job? If so, go crazy. You could probably get a better price by waiting a while, but I'm not sure what you're worried about.


Posted by: LizardBreath | Link to this comment | 10- 3-08 8:21 PM
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It seems like a good time to buy a house if you can get credit and if you drive a hard bargain.

Two houses on my block have sold in the last month. As I said, this isn't Elgin, but being at the bottom end has its upside.


Posted by: John Emerson | Link to this comment | 10- 3-08 8:22 PM
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62: The people breathing deep sighs of relief are morons. We're entirely at the mercy of whether the market decides, "no wait, the bailout is too small". The Treasury has to a) invent the mechanism by which they buy the debt, b) hope that banks that can be saved participate, and c) hope that this improves those bank's balance sheets enough that they stay solvent. It's a bizarre way to proceed when there is a perfectly good alternate mechanism: ensure the banks have enough capital by giving them capital and getting stock in return.


Posted by: Walt Someguy | Link to this comment | 10- 3-08 8:22 PM
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46

Dude, the people making and flipping the loans, and packaging and selling the resulting securities, have been making shitloads of money. The motivation of the banks may be obscure, but that's because banks don't have motivations. The motivations of the people making the decisions that led to this mess are perfectly transparent.

The motivation of the people now stuck with the bad loans was some combination of greed and stupidity. It did not however involve some clever plan in which they would intentionally lend money and not be paid back.


Posted by: James B. Shearer | Link to this comment | 10- 3-08 8:23 PM
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They don't need to raise it in a week. But if they didn't do it now, I don't have any faith they'll do it later. Maybe I'll be pleasantly surprised.

Seriously, look at the numbers.

If they cut the defense budget to zero effective immediately, it'd take a year and a half for that to add up to $700B. Never mind the fact that you've just put millions of people out of work.

I'm not sure how changes to tax law work in terms of ex post facto, but with a new administration coming to town in four months, and it taking years to pay this off at a minimum, no changes to tax law made now can be presumed to stick for the life of the plan. No way they can raise $700B between now and the new tax year anyway.

The one thing that's not a problem with this bill is how we're going to pay for it. At least, it's not an inherent problem, yet.


Posted by: water moccasin | Link to this comment | 10- 3-08 8:24 PM
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John, we have no idea at the moment what we should expect for the future. Go on about another Great Depression if you like. Sifu's right about the frozen credit markets; if nothing else, we need to see states and municipalities able to raise funds for immediate needs. That's no joke. That there were other proposals for making that happen is a non-starter at the moment, but my sense is that there's no reason yet (aside from general cynicism) to think those proposals haven't a shot in the hopefully near future.


Posted by: parsimon | Link to this comment | 10- 3-08 8:25 PM
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72 to 66 initially.


Posted by: parsimon | Link to this comment | 10- 3-08 8:26 PM
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No, of course not, James, because in your folk world evil is a trait of borrowers. And certainly none of the players planned to run with their loot before the roof came down, or to stick someone else with the problem, or run to the taxpayer for help.


Posted by: John Emerson | Link to this comment | 10- 3-08 8:26 PM
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but when something big like this comes along they say "Bubbles are psychological, so we can't understand them".

We should all read Mandeville's Fable of the Bees, written in the aftermath of the South Sea Bubble. Private vices, publick benefits? Only when we can force the knaves to turn honest, I guess.


Posted by: Mary Catherine | Link to this comment | 10- 3-08 8:27 PM
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It did not however involve some clever plan in which they would intentionally lend money and not be paid back.

Ahem. Collateralized Debt Obligation. Default credit swap. Dude.

max
['Geez.']


Posted by: max | Link to this comment | 10- 3-08 8:27 PM
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47

... and no lender was fooled by a debtor. ...

This is silly, lenders are fooled by debtors all the time. Just like banks are robbed all the time. If they ever let their guard down the predators come and tear them apart. They let their guard down.


Posted by: James B. Shearer | Link to this comment | 10- 3-08 8:29 PM
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68: no, I won't be keeping my job. That's part of what makes me nervous. Taking on a mortgage while looking for a new job in this market seems somewhat risky.

Also, I'd rather not buy a house and then watch its value promptly fall 20%. 10% I could probably stomach.


Posted by: Brock Landers | Link to this comment | 10- 3-08 8:29 PM
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Parsi, there are various scenarios before us, many of them bad. So far nothing has been done proactive to work toward a best-case. The bailout is a stopgap, and no one seems capable of being proactive. The smartest people seem very uncertain about what to do and generally fearful about the consequences.

If no one has any idea at all what's going to happen, we're in far worse trouble than even I think. We need someone who's able to think into the future a little in order to make the best of this.


Posted by: John Emerson | Link to this comment | 10- 3-08 8:32 PM
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I just l-o-o-o-o-v-e the way economists strut around being scientific and expert and arrogant 99% of the time, telling you how it is and sneering at you, but when something big like this comes along they say "Bubbles are psychological, so we can't understand them". It's like the other social sciences are a trash bin for them to toss their failures into.

I see plenty of perfectly orthodox economists claiming that they understand what caused the bubble (low interest rates, questionable lending practices, excess leverage), why those causes persisted (keep the economy moving so politicians get re-elected, keep mortgage volume up, keep finance company earnings up), and why people are reluctant to face them now (requires bankers/regulators to admit that they royally screwed up, requires politicians telling voters that their money is gone and not coming back, prevents closing your eyes and hoping the problem goes away).

It's a political and regulatory failure, not an economic one.


Posted by: water moccasin | Link to this comment | 10- 3-08 8:32 PM
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64: yeah I mean I wouldn't have ever said that if I didn't have firsthand knowledge. If the harm exceeds the crime... I don't fucking know. But the collapse of the municipal lending market wreaks havoc with a lot of otherwise laudable things.

68: if you can get debt, that is.


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 8:33 PM
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79 is also spot on. Off to drink.


Posted by: water moccasin | Link to this comment | 10- 3-08 8:34 PM
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Shearer, some of those predatory buyers had IQs under 80. A lot of them were perfectly ordinary small businessmen who saw easy money lying around. They weren't evil geniuses who cleverly conned the banks. You seem to think that the banks got taken over by retards. Greed yes, stupidity no.


Posted by: John Emerson | Link to this comment | 10- 3-08 8:35 PM
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Taking on a mortgage while looking for a new job in this market seems somewhat risky.

If you're serious about your job being uncertain, that's your answer -- don't buy. But this is obvious enough that I'm not sure what your question was.


Posted by: LizardBreath | Link to this comment | 10- 3-08 8:35 PM
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"Greed yes, stupidity no"

Huh?

Oh, and it's "gewgaws", not "googaws". I couldn't pass up an opportunity to correct such a delectably obscure word.


Posted by: pdf23ds | Link to this comment | 10- 3-08 8:37 PM
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Just like banks are robbed all the time. If they ever let their guard down the predators come and tear them apart. They let their guard down.

Oh, I think I get it now. James views this entire financial kerfuffle in the light of the very fine acting and brilliant screenplay that characterize Dog Day Afternoon. They let their guard down, for sure.


Posted by: Mary Catherine | Link to this comment | 10- 3-08 8:37 PM
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I have two words for james: "Lending Tree".


Posted by: pdf23ds | Link to this comment | 10- 3-08 8:39 PM
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What were they saying six years ago, when Dsquared was talking about this? Or two years ago, when lots of people knew about it? What was Greenspan saying? Bernanke?

I understand that economics has all the right answers, along with all the wrong answers, so that no matter what happens you can say that Economics Knew That. But if economics were an actual science with ethical principles, sometime in the last few years the whole profession would have stood up all together and done something. Instead the various mercenaries all did what they were supposed to do.

When things go well economists are more than happy to take credit, but when they go badly they say "Who, me?"


Posted by: John Emerson | Link to this comment | 10- 3-08 8:40 PM
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Taking on a mortgage while looking for a new job in this market seems somewhat risky.

Basically, don't do anything that requires credit, and thus going into debt. Reason is, if deflation gets going, the value of dollars will increase and your debts will effectively get bigger, even while you may be taking salary reductions. Bad.

House prices will fall further, so you'd be paying to help someone else out of their debt. (Why do that when the government will be doing it for you at some point?)

If you want to spend money, you're better off doing a little spending down, in case we wind up in a inflationary cycle (which we should start, but Bernanke continues to refuse to do this), and the value of your holdings rot out. So you buy shit you need or have been putting off purchasing, but you don't spend enough that it requires the use of credit.

max
['Like guns!']


Posted by: max | Link to this comment | 10- 3-08 8:43 PM
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To me this thread isn't about what should have been done today anymore, it's more about what we should expect for the future. The worst case is another Great Depression. The best case seems to be Japanese stagnation.

Word. Calculated Risk predicted tonight that unemployment will not peak until 2011.
This is gonna be so bad.

And whether Goldman-Sachs will own us all in five years.

Yves Smith let me back in. So gonna be a good dog & not comment there, and maybe not link to her either. Maybe play nice here too, or not play much at all. Just read a lot.

Any commenting will be in the service of Bloomsbury, in the desperate hope that Obama can be talked into the doubling of upper-class taxes that FDR started with.

The bill will come due. Bernanke could get allsudden scared of inflation next spring, or maybe it will be 2011-12, but all the money being spent now will be paid back by someone somehow. It is going to be real bad for at least a decade.

I picked the wrong time to grow old.


Posted by: bob mcmanus | Link to this comment | 10- 3-08 8:44 PM
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80

It's a political and regulatory failure, not an economic one.

I don't think this is exactly right. Politics and regulators likely didn't cause the problem they just failed to prevent it. Markets and human psychology seem to interact in a way that naturally generates instability like bubbles and boom/bust cycles. This is a flaw with the unregulated economic system which is not easy for the political system to deal with.


Posted by: James B. Shearer | Link to this comment | 10- 3-08 8:45 PM
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What was Greenspan saying? Bernanke?

That was everything was fine and we should cut taxes. And house prices would be going up. Which they did, actually, so you should buy. And we should invade Iraq.

max
['Because an occupation would pay for itself.']


Posted by: max | Link to this comment | 10- 3-08 8:45 PM
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88: John, no threadjacking on the topic of the Evil that is the entire economics profession.

And yeah, nobody's being proactive yet. Is it just hopelessly naive to think that someone will be? Maybe so. But look: collapsing into hand-wringing doesn't show any promise. Rather, continue to demand reform. C'mon, this is basic stuff.


Posted by: parsimon | Link to this comment | 10- 3-08 8:45 PM
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89:John, I keep telling ya you are reading the wrong economists. There's a lot of good people in the field.


Posted by: bob mcmanus | Link to this comment | 10- 3-08 8:48 PM
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Markets and human psychology seem to interact in a way that naturally generates instability like bubbles and boom/bust cycles. This is a flaw with the unregulated economic system which is not easy for the political system to deal with.

Again: if economists fail, psychology is the problem. Blame the psychologists! How could economists have known that?

And then, maybe an unregulated economic system is not a good idea. But lo! -- we've had 30 years or so of deregulation.


Posted by: John Emerson | Link to this comment | 10- 3-08 8:49 PM
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And do you really consider busted speculators to be predatory lending victims?

We know that the lenders were engaged in something resembling a ponzi scheme. Were the investors who bought houses witting participants in a ponzi scheme? Most investors in ponzi schemes are not, though it's true that some get rich.



Posted by: politicalfootball | Link to this comment | 10- 3-08 8:51 PM
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Is it just hopelessly naive to think that someone will be?

Probably. Who? I had my hopes for DeFazio, but his plan was sort of lame. For all I know the Kucinich plan was good, but he's funny-looking and short.


Posted by: John Emerson | Link to this comment | 10- 3-08 8:55 PM
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83

Shearer, some of those predatory buyers had IQs under 80. A lot of them were perfectly ordinary small businessmen who saw easy money lying around. They weren't evil geniuses who cleverly conned the banks. You seem to think that the banks got taken over by retards. Greed yes, stupidity no.

Of course they weren't evil geniuses, that's the point. The lenders let their guard down to the point that you didn't have to be an evil genius to defraud them. Since there are a lot more evil average guys than evil geniuses that was a problem.

Part of the madness of crowds is that it can cause intelligent people to behave stupidly. Greed can also make you stupid. This feeds bubbles and Ponzi schemes. The entities that got stuck with the bad loans for the most part behaved stupidly.


Posted by: James B. Shearer | Link to this comment | 10- 3-08 8:56 PM
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There's a lot of good people in the field.

The difference between Emerson and McManus, on this, as on so many other points, is the difference between a stubbornly fatalistic pessimism, on the one hand, and a stubbornly optimistic fatalism, on the other.


Posted by: Mary Catherine | Link to this comment | 10- 3-08 8:57 PM
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98: say, so, James, weren't you peddling the "blame the CRA" line here some weeks before it hit the mainstream? I must commend you for your perscipacity, if not your accuracy.


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 8:58 PM
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"perspicacity".


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 8:58 PM
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And then, maybe an unregulated economic system is not a good idea. But lo! -- we've had 30 years or so of deregulation.

That's what the running feud over Greenspanism is about, since it encapsulates the differences between the guys who like the unregulated ever-expanding financial globalization, and the rag-tag crew (which includes me) who have opposed it for various reasons.

The guys who had the out the free money usually win, in the short term.

max
['But not forever.']


Posted by: max | Link to this comment | 10- 3-08 8:59 PM
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I'm aware that there are some good economists. I'm just saying that there's no profession and no science. If you have a math question, normally you shop around until you find someone who knows the answer, or who can find the answer, or who can tell you that no one knows the answer. If you have an economics question, you have to choose between a wide range of professional opinions, and almost all of the professionals have ideological and material commitments.

So I say that economists are knowledgeable mercenary advocates. But they don't present themselves that way, but as pure extra-virgin Scientists wy smarter than anyone else.


Posted by: John Emerson | Link to this comment | 10- 3-08 9:02 PM
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As I've said before, Tom and Daisy always win.

So we beat on, boats against the current, borne back ceaselessly into the past.
We even have J.P. Morgan running the show again, for Christ's sake.
Posted by: John Emerson | Link to this comment | 10- 3-08 9:04 PM
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John you're being kind of (more of) an ass (than usual). What are the social sciences you'd save from your axe? Sociology? Political Science? Linguistics? None of them? Uh oh! What do we talk about on unfogged now?


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 9:05 PM
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re: credibility: CRA = Big Red Flag.

P.S. Greenspanism is dead. Long live Volcker!


Posted by: foolishmortal | Link to this comment | 10- 3-08 9:06 PM
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104: Was that the point of the book? I wasn't paying enough attention while reading it. (On my own time, too.)


Posted by: pdf23ds | Link to this comment | 10- 3-08 9:07 PM
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Tweety, you're not showing that well yourself.

Like many, I think that all of the social sciences make fraudulent claims. They just aren't that scientific. And economists are heavily bought into finance. A middle class economist is a failure.


Posted by: John Emerson | Link to this comment | 10- 3-08 9:08 PM
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James, you really need to acknowledge in some fashion that you read and understood max's 76. If you're just going to pretend that securitization didn't shape motives, there's really not much anybody can do to help you.


Posted by: politicalfootball | Link to this comment | 10- 3-08 9:09 PM
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Not to lower the tone of the thread or anything, but did Greenspan and Ayn Rand really....well, you know...do that bold thing? Or is that just still more imprudent and irresponsible speculation?


Posted by: Mary Catherine | Link to this comment | 10- 3-08 9:09 PM
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It would be irresponsible not to speculate.


Posted by: pdf23ds | Link to this comment | 10- 3-08 9:10 PM
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108: I... okay? So no social scientists should weigh in on policy? We shouldn't retreat to empiricism in times of danger?

Look, I'm as uncomfortable with people claiming the mantle of science as you are (I think), but what the fuck else are we supposed to do right (exactly) now?


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 9:10 PM
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110: yes.


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 9:11 PM
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208: Sure, dig deeper, pal. Just because Tweety was being jerkish doesn't mean he was wrong.


Posted by: foolishmortal | Link to this comment | 10- 3-08 9:11 PM
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Oooh. I can't wait to read 208.


Posted by: politicalfootball | Link to this comment | 10- 3-08 9:12 PM
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208 cont'd: maybe I went too far.


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 9:13 PM
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114: Don't you see, they want us to turn on each other. It makes us easy pickings for the Goldman-Sachs death squads.


Posted by: Walt Someguy | Link to this comment | 10- 3-08 9:13 PM
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107:

They were careless people, Tom and Daisy--they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made. . . .


Posted by: John Emerson | Link to this comment | 10- 3-08 9:14 PM
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95

... How could economists have known that?

Known what? That markets can generate instability? From numerous historical examples.

And then, maybe an unregulated economic system is not a good idea. But lo! -- we've had 30 years or so of deregulation.

Obviously mistakes were made. But it is not an easy problem.


Posted by: James B. Shearer | Link to this comment | 10- 3-08 9:14 PM
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118: John you made the mistake of quoting possibly my favorite passage in all of literature, in the service of... shit, I don't know what. We don't disagree! It's all fucked up, and the answer is the government getting involved. The government, at this moment, has to pick up the pieces. No?


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 9:16 PM
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We obviously have to choose one or several of the many economists to listen to, and hope that he knows what he's talking about, and hope that he's on our side. But it's not Science. It's not like asking a physics question or a chemistry question. And many economists stand behind the screen of Science while they promote their agendas and cash out.


Posted by: John Emerson | Link to this comment | 10- 3-08 9:18 PM
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Mistakes were made indeed.


Posted by: John Emerson | Link to this comment | 10- 3-08 9:19 PM
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121: hey, okay! Let's do the same thing in the service of psychology and history. It does suck, I agree. It's horrfic. I also quite freely agree we don't know better.

Which sucks.

Convenient!


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 9:20 PM
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Let's all agree to agree that we know jack.


Posted by: pdf23ds | Link to this comment | 10- 3-08 9:21 PM
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John you made the mistake of quoting possibly my favorite passage in all of literature

So, wait: are you Tom or Daisy? Not that it matters, of course. Same difference, more or less.

I do think your 105 is way too harsh on John in a way that just misses his point.


Posted by: Mary Catherine | Link to this comment | 10- 3-08 9:22 PM
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but what the fuck else are we supposed to do right (exactly) now?

Listen to your heart, of course.

Guillotines

Shirley Temple/Preston Sturges/Marx Bros movies

And legal sense would be nice.


Posted by: bob mcmanus | Link to this comment | 10- 3-08 9:22 PM
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109

James, you really need to acknowledge in some fashion that you read and understood max's 76. If you're just going to pretend that securitization didn't shape motives, there's really not much anybody can do to help you.

CDOs were clever (deceptive) packaging that made $100 worth of mortgages look like $110 (or whatever). So the buyers overpaid and lost money. The buyers weren't expecting to lose money.


Posted by: James B. Shearer | Link to this comment | 10- 3-08 9:22 PM
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When the dust settles, economists will return to their condescending arrogance. At the moment they don't know what will happen, and they're as afraid as we are, except for the Chicago school of course. We're looking toward some creative destruction, and not everyone thinks that's bad.


Posted by: John Emerson | Link to this comment | 10- 3-08 9:23 PM
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Frankly, I think the economists should just pack their bags and go home. We can figure this out by ourselves.


Posted by: parsimon | Link to this comment | 10- 3-08 9:25 PM
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Some say that drugs will get you through times with no money better than money will get you through times with no drugs, but others say that at a certain point that stops being true.


Posted by: John Emerson | Link to this comment | 10- 3-08 9:26 PM
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Don't be silly, Parsi.


Posted by: John Emerson | Link to this comment | 10- 3-08 9:27 PM
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James, mortgage bonds are priced using historical default (and prepayment) rates. The key determinant of default rates is how much equity you have in the house. The fact that default rates were going to go up when housing prices stopped going up was the most predictable outcome of the whole process.


Posted by: Walt Someguy | Link to this comment | 10- 3-08 9:31 PM
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131 gets it exactly right.


Posted by: Sifu Tweety | Link to this comment | 10- 3-08 9:31 PM
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Preston Sturges

Best and brightest of America, for real and for true. Love him, unabashedly.


Posted by: Mary Catherine | Link to this comment | 10- 3-08 9:32 PM
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But John. That Kucinich fellow, funny-looking and short. Plus his ears stick out, is what I believe. Obama's do too, but he has like thirty goddamned dicks, so that's okay.


Posted by: parsimon | Link to this comment | 10- 3-08 9:32 PM
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All John is saying is that economists are akin to the historians of old and even the historians are new, who each believe that different lessons from history are the lessons that are most important for our leaders to learn from and emulate in our current situation, and nobody has the correct answer. I think.


Posted by: CN | Link to this comment | 10- 3-08 9:32 PM
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So I say that economists are knowledgeable mercenary advocates. But they don't present themselves that way, but as pure extra-virgin Scientists wy smarter than anyone else.

Well, economics is not a science. Neither is history or a bunch of other stuff I am too preoccupied to list. I think I yelled about that at DeLong a few years ago. Four years ago. I would not say tho, that economics is meaningless, anymore than history is, and you do have to pay attention to that stuff to govern.

McArdle and some random handwaving about markets is not going to cut it. Or it shouldn't cut it, and it HAS, unfortunately.

max
['Dominance of a given party over the long period might be decided by whether voters want their free money from private sources or public ones.']


Posted by: max | Link to this comment | 10- 3-08 9:33 PM
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All John is saying is that economists are akin to the historians of old and even the historians are new

I'm pretty sure John never meant to insult historians in that way. Historians have more humility, and also more nuance.


Posted by: Mary Catherine | Link to this comment | 10- 3-08 9:35 PM
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As far as I know, the freemarketers see this as an opportunity to push their program even further. I think, but am not sure, that that's where Tabarrok's letter signed by a hundred Chicago whiz kids was going.


Posted by: John Emerson | Link to this comment | 10- 3-08 9:36 PM
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137: Oh, yes, I was going to say that we should turn it over to McArdle.


Posted by: parsimon | Link to this comment | 10- 3-08 9:36 PM
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132

James, mortgage bonds are priced using historical default (and prepayment) rates. The key determinant of default rates is how much equity you have in the house. The fact that default rates were going to go up when housing prices stopped going up was the most predictable outcome of the whole process.

What's your point?


Posted by: James B. Shearer | Link to this comment | 10- 3-08 9:37 PM
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Parsi, in our world, Kucinich doesn't have a chance. Which is why I curse the Democrats.


Posted by: John Emerson | Link to this comment | 10- 3-08 9:37 PM
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but what the fuck else are we supposed to do right (exactly) now?

When in danger or in doubt
Run in circles
Scream and shout


Posted by: JP Stormcrow | Link to this comment | 10- 3-08 9:44 PM
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142: John, I'm afraid I've been engaging in some gentle mockery. Of course economics is not a science; the fact that some economists adopt the mantle of expertise does not mean that we must or should dismiss them all. By the same token, yes, Kucinich is taken for a joke (I actually don't know whether his plan was any good), but due to knee-jerk anti-flakism (ha!), he hasn't a chance. Of course not.

What I don't want to hear is any suggestion at all that we should abandon an insistence on government action to correct the long-developed imbalances that have led to the current situation. Sometimes, with your seeming distrust of all authority, you sound as though you're heading in that direction. I know you don't mean that, but realize that your authority-bashing grates for that reason.


Posted by: parsimon | Link to this comment | 10- 3-08 9:45 PM
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No, I support DeLong's Swedish solution. My beef with DeLong is on free trade and Clintonism.

DeLong isn't very far left, and there are very few economists to his left. (Marxists don't count).


Posted by: John Emerson | Link to this comment | 10- 3-08 9:50 PM
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Actually, I'm rather tired of being angry about this and every other fucking thing in our national public life.

I love this plan! I'm excited to be a part of it! LET'S DO IT!


Posted by: JP Stormcrow | Link to this comment | 10- 3-08 9:56 PM
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Comity.


Posted by: parsimon | Link to this comment | 10- 3-08 9:56 PM
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127: Try again, James. Your response has nothing to do with max's comment, which was not about the buyers of CDOs. He was calling your attention to the sellers of CDOs, whose existence (or at least relevance) you seem to deny.

But okay, you acknowledge that CDOs were bought. Can we got a step further and agree that CDOs were sold? That seems to follow, right?

And if we can get you to grant that these instruments were sold, can you explain to me how the sellers acquired these things? Once you work that out, I think you'll see your error when in 70 you mock the idea of

some clever plan in which they would intentionally lend money and not be paid back.


Posted by: politicalfootball | Link to this comment | 10- 3-08 9:56 PM
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So, which is going to be the better gig... the CCC or the WPA?


Posted by: Spike | Link to this comment | 10- 3-08 10:06 PM
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John, I'm still willing to help you find a Canadian wife, and I even have a prospect in mind, and she's my own first cousin. She has four brothers, though, so you'd have to mind your Ps and Qs (little-known fact about Canadia: gun ownership rates are quite a bit higher than gun usership rates might imply). Though we're quite eminently respectable and law-abiding in general, of course, there have been a couple of regrettable brother-in-law upon brother-in-law "incidents," which the Crown of course felt obliged to prosecute...


Posted by: Mary Catherine | Link to this comment | 10- 3-08 10:17 PM
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148

And if we can get you to grant that these instruments were sold, can you explain to me how the sellers acquired these things? Once you work that out, I think you'll see your error when in 70 you mock the idea of

some clever plan in which they would intentionally lend money and not be paid back.

The sellers bought mortgages or pools of mortgages, packaged them to give the illusion of greater value and resold them. It was not part of their plan not to be paid.


Posted by: James B. Shearer | Link to this comment | 10- 3-08 10:26 PM
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Long live Volcker!

Hail one-eyed Volcker! He will lead us through the fimbulvetr and into battle against the death-eating hordes of Goldman-Sachs and the other sons of Muspell!

I think, but am not sure, that that's where Tabarrok's letter signed by a hundred Chicago whiz kids was going.

Well, yeah, and they have a short-term point. If you want to allow the banks (effectively) unregulated, you treat them like unregulated entities and let them go bust. Whereupon we don't have a banking system and we get to build a new one. (Which could be either Swedish or Austrian.) What we are getting instead, is the corporatism of Japan, which is notably not particularly democratic and not particularly effective either.

max
['So there's that.']


Posted by: max | Link to this comment | 10- 3-08 10:30 PM
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The sellers bought mortgages or pools of mortgages, packaged them to give the illusion of greater value and resold them. It was not part of their plan not to be paid.

But it IS part of their plan to act as though it doesn't matter if they get paid on their mortgages or not, since that all acts as insurance against defaults.

max
['So they can loan just like they don't care if they get paid or not.']


Posted by: max | Link to this comment | 10- 3-08 10:32 PM
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To my mind, the bond rating companies need to be dismembered because of this. They put AAA ratings on turd. Let the SEC take over that business.


Posted by: Spike | Link to this comment | 10- 3-08 10:33 PM
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All John is saying is that economists are akin to the historians of old and even the historians are new, who each believe that different lessons from history are the lessons that are most important for our leaders to learn from and emulate in our current situation, and nobody has the correct answer. I think.

And I am saying that this has mostly been a process of various cheerleaders mostly ignoring what they know in favor of some notion of this being a new world, a thread that was picked up by various commentators who ran with the idea that economics was the science of telling people that they can have all the money they want. I am not saying that economists are not at fault; I am saying that non-economists are at fault too, because they listened to what they wanted to hear and ignored the rest. Individual economists who got on the prosperity gospel wagon train deserve everything they get, and everybody should ignore that shit about how everything will be wonderful forever.

max
['Because that never works.']


Posted by: max | Link to this comment | 10- 3-08 10:45 PM
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154

To my mind, the bond rating companies need to be dismembered because of this. They put AAA ratings on turd. Let the SEC take over that business.

Won't necessarily do any good unless you are going enforce automatic downgrades based on complexity. And maybe you should rate on several metrics.


Posted by: James B. Shearer | Link to this comment | 10- 3-08 10:47 PM
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So, which is going to be the better gig... the CCC or the WPA?

Even assuming the new CCC would open up to women and older workers, I'd stick with the WPA myself.


Posted by: Sir Kraab | Link to this comment | 10- 3-08 11:19 PM
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1.) Can someone explain to me how this bailout is supposed to work? I mean, what's the theory behind it?

2.) How did the Swedes recapitalize their banking system?

3.) What are other ways that countries have successfully recapitalized?

4.) Why weren't these other methods politically feasible?



Posted by: Bostoniangirl | Link to this comment | 10- 4-08 2:08 AM
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||

Brock, I heard that your place is overrunning with first year associates. Every single one of the summer associates who were given an offer accepted it. And, unlike some California places doing transactional work post dot.com bust, your place doesn't rescind offers.


Posted by: Bostoniangirl | Link to this comment | 10- 4-08 2:10 AM
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|>


Posted by: Bostoniangirl | Link to this comment | 10- 4-08 2:11 AM
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158.2Swedish Way ...NYT

158.3IMF Study ...Naked Capitalism;

158.4:??? Because Bush/Paulson had the initiative? Krugman expects something like the Swedish model to become the plan after the election/inauguration. I'm not so sure, since only Goldman-Sachs will be left standing, and...

158 1 & 4: Since I think the Paulson bill was in large part intended to buy back the toxic waste we sold to overseas banks, under threat, a domestic solution was never in the cards.

But 1 is anybody's guess, and we will have to see how it plays out, if they let us watch. In general, I think DeLong & Krugman mainly see it as simply a liquidity injection.


Posted by: bob mcmanus | Link to this comment | 10- 4-08 2:55 AM
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Thanks for the links, bob. This insomniac appreciates it.


Posted by: Bostoniangirl | Link to this comment | 10- 4-08 3:13 AM
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David Brooks outdid himself yesterday. Maslow, pop psychology, and Republican drivel.


Posted by: John Emerson | Link to this comment | 10- 4-08 5:27 AM
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I mean pop sociology. I regret the error.


Posted by: John Emerson | Link to this comment | 10- 4-08 5:28 AM
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You have to feel sorry for conservatives who don't want to seem like idiots. Caldwell's suggestion that Palin should have exploited Biden's vulnerability on bankruptcy reform is inane; it was a Republican bill. His claim that Palin is knowledgeable about energy must have been some kind of contractual obligation.

Caldwell finally comes close to giving up on the US -- a reasonable position indeed, but he really needed to acknowledge his conservative movement's enormous contribution to causing the disaster.


Posted by: John Emerson | Link to this comment | 10- 4-08 6:29 AM
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David Brooks, judging from his column today, apparently was masturbating WHILE watching the VP debate. Money quote:

There are some moments when members of a political movement come together as one, sharing the same thoughts, feeling the same emotions, breathing the same shallow breaths.


Posted by: John Emerson | Link to this comment | 10- 4-08 6:32 AM
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OT bleg:

I have a recipe for Southern Italian Chickpea Soup that involves a bean broth and sauteed veggies added towards the end. The veggie blend consists of onions, carrots, and fennel, but neither AB nor I much care for fennel. Any alternative suggestions, O Uncookedtariat?


Posted by: JRoth | Link to this comment | 10- 4-08 6:37 AM
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Sage or thyme.


Posted by: apostropher | Link to this comment | 10- 4-08 6:43 AM
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163-166: One thing Palin does is provide an opportunity to wrap up all the self-denial and cognitive dissonance of conservative commentators in one neat little package. Bérubé had a good piece that touched on this a couple of days back. Being a cheerleader for the national Republican Party provides you a new test of intellectual honesty to fail each and every day.


Posted by: JP Stormcrow | Link to this comment | 10- 4-08 6:47 AM
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Parsley, rosemary. Folk pop in general. Bridge over Troubled Water. The Mommas and The Poppas and the ham sandwich Karen Carpenter should have eaten.


Posted by: John Emerson | Link to this comment | 10- 4-08 6:48 AM
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167: Leeks?


Posted by: Di Kotimy | Link to this comment | 10- 4-08 6:50 AM
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You know what would have made Palin even more effective? If, like Marge Gunderson, she'd shot a psychopath killer while she was pregnant with Trig. "As a feminist, it makes me darn mad to hear people say that women shouldn't shoot psychopaths when pregnant, or that pregnant women is 'too delicate' to see an accomplice who's been run through a woodchipper."


Posted by: John Emerson | Link to this comment | 10- 4-08 7:03 AM
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The sellers bought mortgages or pools of mortgages, packaged them to give the illusion of greater value and resold them. It was not part of their plan not to be paid.

This omits some potentially key information - I may have to amplify "illusion of greater value" if that leads you astray - but for now I'll accept this answer. With luck, we're almost there.

Okay, now "pools of mortgages" consist of individual mortgages, right? So for our purposes, "mortgages or pools of mortgages" in your answer can be simplified to "mortgages," right?

Now where did the mortgages come from?


Posted by: politicalfootball | Link to this comment | 10- 4-08 7:12 AM
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Palin really, like, says "like" a lot. A Matanuska Valley girl.


Posted by: John Emerson | Link to this comment | 10- 4-08 7:17 AM
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Thanks, Di. Leeks may very well be the answer.

No thanks, apo and John. Cripes.


Posted by: JRoth | Link to this comment | 10- 4-08 7:20 AM
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Okay, now "pools of mortgages" consist of individual mortgages, right?

No. A key part of the scam brilliance of these financial instruments was that the mortgages were "sliced and diced" so that no one owned all of any one mortgage. The premise, I guess, was that only a small number of mortgages would ever default, and that randomness dictates that one person could be left with a disproportionate number. But if everyone owns 1/x of all the mortgages, then everyone has the same exposure.


Posted by: JRoth | Link to this comment | 10- 4-08 7:24 AM
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Chocolate chips?


Posted by: apostropher | Link to this comment | 10- 4-08 7:38 AM
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JRoth, are you trying to keep the flavor the same? (I'm guessing not, since you don't like fennel, but..)


Posted by: Cala | Link to this comment | 10- 4-08 7:42 AM
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Here's a great piece on Sarah Palin: "the adored mascot of the anti-fiscal crowd".


Posted by: Charlie | Link to this comment | 10- 4-08 7:54 AM
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Hey Brock and Apo, I figure since this hasn't been addressed yet, I should mention it:

Unfortunately, futures prices aren't really a decent predictor of the future price, nor are they meant to be. They're mostly based on the current price of the index and the cost to borrow money. They really only get out of whack with the current price of the index if something bizarre happens like the stock exchanges shut down so the index value is technically frozen, in which case futures prices will keep changing to reflect what people think the "true" value is.

If you want a better predictor of where people think the market is going, you should look at options prices. And yeah, the market thinks there's a lot of risk on the downside. The implied volatilities on low-strike put options are hhhuuugggeee, which basically means that it costs a lot of money to insure the S&P 500. So yeah, everyone thinks it's in danger.


Posted by: Po-Mo Polymath | Link to this comment | 10- 4-08 7:59 AM
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No. A key part of the scam brilliance of these financial instruments was that the mortgages were "sliced and diced" so that no one owned all of any one mortgage.

Shhh. Don't distract me. I'm trying to help James with a very specific point, and this is only tangentially relevant to that point. Plus, you're not actually contradicting me here. No matter how you slice and dice 'em, they're still composed of mortgages, which was my only point. Heck, for my purposes here, even CDS's are based on mortgages, in that they don't exist absent the mortgage market. But don't make me explain that! It's a distraction!

(If you want to follow this, look at max's 76, and the comment to which max was responding.)

Also, you're overlooking the obvious solution to your fennel problem: Learn to like fennel. It's delicious!


Posted by: politicalfootball | Link to this comment | 10- 4-08 8:01 AM
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Good and Plentys are an excellent substitute for fennel.


Posted by: jms | Link to this comment | 10- 4-08 9:00 AM
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JRoth, leeks are delicious, but they are VERY different from fennel. you probably want to substitute something that has a light, contrasty, slightly sweet herbal taste, not add another member of the onion-garlic family.

like apo said: rosemary, sage, thyme? marjoram?

but who knows, you might like the fennel when it's mixed in with all the other stuff.


Posted by: murphy | Link to this comment | 10- 4-08 9:07 AM
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(If you want to follow this, look at max's 76, and the comment to which max was responding.)

Yeah, I've only skimmed. I had a feeling that my response wasn't precisely relevant, but the terms of your 173 were straightforward enough that I didn't want to leave it out there, potentially misguided.

Anyhoo.

WRT fennel, I'm fine with the seeds but in general I'm not a fan of licorice flavors (the whole anise-fennel axis), and I figure why should I use an ingredient I'm not fond of.

Other key flavors include orange, anchovy, and parmesan rind. I want something harmonious, but if I wanted fennel, I can certainly acquire some.


Posted by: JRoth | Link to this comment | 10- 4-08 9:07 AM
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Further: I've skimmed largely because I don't want to get sucked into this same swamp again. If I do, I'll just visit JE's other blog.


Posted by: JRoth | Link to this comment | 10- 4-08 9:10 AM
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McManusSpeak from Roubini. Cheer up, folks!


Posted by: John Emerson | Link to this comment | 10- 4-08 9:13 AM
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I want something harmonious, but if I wanted fennel, I can certainly acquire some.

Celeriac? You would probably have to julienne it.


Posted by: CJB | Link to this comment | 10- 4-08 9:38 AM
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186: It just goes to show you've been using the wrong Coen brothers' movie for life guidance. The relevant movie for our times is not The Big Lebowski but O Brother, Where Art Thou.


Posted by: Walt Someguy | Link to this comment | 10- 4-08 9:51 AM
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I'm fine with the seeds

Wait—does the recipe call for fennel seed or fennel bulb?


Posted by: Jesus McQueen | Link to this comment | 10- 4-08 10:04 AM
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186:Y'all could have some fun, with some "how bad can it get?" jokes

Econblog joke

Trader:This is looking very bad. I'm buying gold.
2nd trader:Optimist. I'm buying rice.


Posted by: bob mcmanus | Link to this comment | 10- 4-08 10:19 AM
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So bob, want too join me at Trollblog? http://trollblog.wordpress.com It's time for the trolls to take over. Civility has failed.


Posted by: John Emerson | Link to this comment | 10- 4-08 10:32 AM
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WRT fennel, I'm fine with the seeds but in general I'm not a fan of licorice flavors (the whole anise-fennel axis), and I figure why should I use an ingredient I'm not fond of.

Just leave it out. If you need to replace the bulk, increase the amount of the other veggies. My expectation is that they want that particular flavor in the soup (italian bean soups tend to use fennel), but if you don't like it, leaving it out won't affect it much, you just won't have that flavor you don't like.

max
['Simple.']


Posted by: max | Link to this comment | 10- 4-08 11:26 AM
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173

Now where did the mortgages come from?

Some were arranged by mortgage brokers or other middlemen, some came from banks lending directly. I am not sure of the relative proportions.


Posted by: James B. Shearer | Link to this comment | 10- 4-08 2:07 PM
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167: for a soup, maybe celeriac would work with the cooking times, give it a different taste though. You can put a bit of belgian endive in (but it won't cook quite like the roots) and maybe a little fennel seed for balance.

I doubt you can go far wrong, even if you use celeriac or celery. But as max noted, you can bulk up the others a bit.


Posted by: soup biscuit | Link to this comment | 10- 4-08 2:14 PM
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194 assume fennel root was called for, obv.


Posted by: soup biscuit | Link to this comment | 10- 4-08 2:15 PM
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[Late. Sorry.]

1.) Can someone explain to me how this bailout is supposed to work? I mean, what's the theory behind it?

The theory is that there are all these derivatives lying around that can't be sold, and in a normal market, they could be sold.

Like this: you own a bookstore. You just bought a bunch of booksets; each bookset is 10 books and cost you a 90 dollars. You want to sell for a 100$. You thought the sets were going to sell like hotcakes, so you bought a bunch of them. So did a bunch of the other stores. So you have a lot of money tied up in those books, and they are on your balance sheet as assets, but cannot currently sell them at 100$. Instead, people keep coming in and making offers of 10$ per set.

Meanwhile, you have several lines of credit open, which you can draw on a little bit, but those credit lines are contingent on your balance sheet showing you as profitable. If you go way into the red, the credit line will be withdrawn and you will have to go into bankruptcy, and then the people who extended the credit to you will come and take your bookstore away and you'll have to work three jobs for 87 years to pay it all off. On the plus side, you have some cash on hand to tide you over, and a few items that are selling, but you're going to run out of cash soon. Worse, customers have noticed that you don't have too many of the books they want, so they're not coming around so much, and rumours are starting to spread. In that situation, you're liquid but insolvent, and when you become illiquid, you will go bust.

Lucky you, the government wants there to be bookstores, so they're willing to come in and buy a bunch of those booksets at the listed price, and hang onto them until there is a normal market, because the government thinks those booksets are valuable just like you. Heck, the government has already extended you a line of credit to keep you operating. So they're going to buy booksets from at 100$ or 110$. At which point your balance sheet will still be in the black, but it will have shifted around internally: for each bookset, you'll have a 100$ in cash, instead of 100$ on the asset/inventory list. Moreover, the government thinks that once people see those booksets being sold, people will be more willing to buy booksets at the listed price, and then other people carrying these booksets will be able to liquidate them at the listed price so everybody will win. Of course, if all the bookstores consist of mostly booksets and not much else, the government will have to buy most of them.

That's the basic theory that's been put out, although no one knows what the Treasury actually intends to do.

The other theory (also at work) is that by ponying up 700 billion dollars, the stock market will take notice and everyone will decide not to sell, since that also threatens the banks. (If people start unloading bank stocks other people think that means the bank is broke, so they withdrawn their money, which accelerates the process of the bank going broke.) Of course, people want to sell bank stock because the banks probably ARE broke. So throwing in an extra 700 billion implies that the government won't let the banks go broke.

The overarching threat is that if the banks go broke, and get liquidated, the panic and whatnot, the failures will cascade and that will cause other healthy companies to go broke.

Problem is, is that no one important wants to nationalize the banks, so this is the alternate solution. Given the size of the markets that the government is trying to provide price support to, the amount of money committed is too small to make the first theory work, unless there is a 'normal' market we can return to.

If there were 1 trillion in derivatives not moving at 30 cents per dollar of face value, and the government bought 70% of those derivatives at 1 dollar per dollar, that should drive the price way up on the other derivatives... if there's a market for them at one dollar. If there isn't they'll sell at some value between 30 cents and a dollar. Of course, there may be no real market for them, in which instance, the remaining derivatives will still be not selling at 30 cents per dollar. There are way more than 1 trillion of derivatives involved here, and they are not moving at some price, and there's no real suggestion I've seen that they're worth much.

People simply seem to be assuming they're 'really' worth that much (or maybe they just deeply desire this), even though they ain't sellin'.

2.) How did the Swedes recapitalize their banking system?

By purchasing the banks that got into trouble and wanted to be saved, essentially. Banks that thought they could make it without selling out decided to do so, and some did.

3.) What are other ways that countries have successfully recapitalized?

That is the way that other countries have recapitalized. No other method appears to work. The Japanese tried just giving the banks money, and the banks lived on as zombies, but didn't really function as banks. When you have a banking crisis and a recession, the banks are collectively under the gun, so it tends to work out that they all eventually die, unless the government acts.

4.) Why weren't these other methods politically feasible?

Because Henry Paulson used to work for Goldman-Sachs and he doesn't want them to go down. That would be an admission of failure (for both Paulson and Bush) for one thing.

max
['Can't have that!']


Posted by: max | Link to this comment | 10- 4-08 2:56 PM
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A NYT article on Fannie Mae.


Posted by: James B. Shearer | Link to this comment | 10- 4-08 3:04 PM
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The two most recent posts at The Big Picture put to rest this CRA bullshit that James and other conservatives are shoveling.


Posted by: F | Link to this comment | 10- 4-08 3:32 PM
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Some were arranged by mortgage brokers or other middlemen, some came from banks lending directly. I am not sure of the relative proportions.

Bingo! Now let's bring it on home. You essentially accused Emerson of promoting a wacky conspiracy theory here:

And you just hate banks and think they intentionally made billions in bad loans as part of some evil scheme the benefits of which are obscure.

And similarly proposed to LB:

It did not however involve some clever plan in which they would intentionally lend money and not be paid back.

The key, to you, was that it was absurd to suggest that lenders would make loans without reasonable assurance the loans would be repaid.

But now, I think, you can see what happened. The human beings who made the loans were not, in fact, overly concerned about whether they were repaid, because they weren't making their money by being repaid. You explained it yourself in 127 and very succinctly in 151:

The sellers bought mortgages or pools of mortgages, packaged them to give the illusion of greater value and resold them. It was not part of their plan not to be paid.

Right! There were victims on both ends of the con - the ones who borrowed the money, and the ones who bought the resulting securities. The middlemen here were insulated from the fallout from bad loans, and therefore didn't care about who they victimized in order to make their loans. That is why the lenders, to repeat your phrase, "made billions in bad loans as part of some evil scheme the benefits of which are obscure."

Except the benefits weren't obscure to the lenders - just their victims on both sides of the con. I trust that you, too, understand the benefits now.

Lenders traditionally make money by making sound loans and collecting the interest. But in this case, the lenders' actual product wasn't merely the loan, it was the mortgage-backed security based on the loan.

We saw again and again how the human beings who made the loans were influenced by their bosses to ignore the prospects of getting paid back. Why? Again: Getting repaid wasn't their concern. There was a huge demand for product - mortgage-backed securities - and if you couldn't produce the product, you were replaced with someone who could. That's the key relevance of the CJR story I linked.

And that' s the best I can do, James. If you don't get it now, I don't know how else I can explain it. For what it's worth, I thought max's answer in 76 was not merely correct, but complete as well. I haven't added anything except some explanation.


Posted by: politicalfootball | Link to this comment | 10- 4-08 3:46 PM
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199

We are arguing about terminolgy. When I talk about lenders I am talking about the entities that ultimately put up the money and are now holding the bad paper. I am not talking about mortgage brokers or other middlemen.


Posted by: James B. Shearer | Link to this comment | 10- 4-08 4:25 PM
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If you don't get it now, I don't know how else I can explain it.

In a thousand years the steady drip drip drip wears away the stone. That's the time frame we're working with. It will take many generations of us to change James's mind. Our children's children may see signs of progress.

It helps to remember that lenders are naive, trusting people, easily taken advantage of by the unscrupulous, and that in any transaction the initiative should always be assumed to lie with worst-informed, least-secure party. All of history tells us this, yet sometimes we forget.


Posted by: John Emerson | Link to this comment | 10- 4-08 4:35 PM
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200: James, you gotta read your own words. You couldn't imagine people lending money without paying attention to how it was going to be paid back. Yet that's exactly what happened. How?

Now you're telling me that you're not talking about the actual lenders when you use the word lenders, but why aren't you? People are saying that lenders behaved badly at the expense of borrowers. You seem to be disputing this without being willing to discuss the motives and actions of the lenders. That doesn't strike me as a very productive approach.


Posted by: politicalfootball | Link to this comment | 10- 4-08 5:21 PM
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202

James, you gotta read your own words. You couldn't imagine people lending money without paying attention to how it was going to be paid back. Yet that's exactly what happened. How?

You are putting words in my mouth. I never said the lenders weren't greedy and stupid, I said they lent money with the expectation that it would be repaid.

Now you're telling me that you're not talking about the actual lenders when you use the word lenders, but why aren't you? People are saying that lenders behaved badly at the expense of borrowers. You seem to be disputing this without being willing to discuss the motives and actions of the lenders. That doesn't strike me as a very productive approach.

Once again we are arguing terminolgy. If I buy a house through a real estate broker, the broker isn't (usually) the seller, the owner is the seller. If I obtain a mortgage through a mortgage broker the broker isn't the lender, whoever puts up the money is the lender.


Posted by: James B. Shearer | Link to this comment | 10- 4-08 5:39 PM
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We're arguing that there was massive complicity between the broker and the lender, and that distinction you're making is tendentious and factitious.

We're also arguing that, in effect, because of internal relations within the lender organizations, the lender organizations did not lend money in the expectations that it would be repaid, because all of internal incentives favored making as many loans as possible, and the checking function as to whether these loans would be repaid had been disabled. This can be called an agent-principal problem, except that apparently there was no principal to be found. Th taxpayer might turn out to be the real principal, and he wasn't involved in any way because of deregulation.


Posted by: John Emerson | Link to this comment | 10- 4-08 5:43 PM
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And you just hate banks and think they intentionally made billions in bad loans as part of some evil scheme the benefits of which are obscure.

James, in this sentence you seem to regard "banks" as entities that made "loans." And you seem to find it ludicrous that they would make bad loans as part of some evil scheme. I was just trying to explain the evil scheme.

But I've hit my limit. I can do no more. I think I'll do something more productive instead. Maybe I'll head over to McArdle's and try to explain collective action problems.


Posted by: politicalfootball | Link to this comment | 10- 4-08 5:47 PM
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205

James, in this sentence you seem to regard "banks" as entities that made "loans." And you seem to find it ludicrous that they would make bad loans as part of some evil scheme. I was just trying to explain the evil scheme.

I meant some evil scheme of the banks. They may have made bad loans as part of someone else's evil scheme. But this was unintentional, they expected to be repaid.


Posted by: James B. Shearer | Link to this comment | 10- 4-08 5:57 PM
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In theory, the principal here is shareholders in the banks, who have been paying the executives gigantic sums of money since the executives have apparently been producing large profits. Dick Fuld may have been fired as CEO of Lehman, but he gets to keep the $22 million he made last year. His shareholders are out their entire investment.


Posted by: Walt Someguy | Link to this comment | 10- 4-08 5:58 PM
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The CEO and owner of Sun Country Airline has been busted for a billion dollar fraud scheme. He was planning to leave the country.

Moral relativism and Ayn Randism wreak havoc on the agent principal relationship.

Shareholders are oddly like simple peasants WRT agent-principal relationships. Especially when the shareholders are large organizations which have their own agent-principal difficulties, so that it's the second level of shareholders who are the principals. Except that the second level of principals is also often corporate. Meanwhile, the things these diffuse layered principals own are entities like tranches. This is like quantum theory. And I forgot to mention, all of the various agents are buddies, and the millions of supposed principals don't know one another.

I do dearly wish that the University of Chicago motherfuckers (James Buchanan, worst economist and U.S. President EVAR) who so skillfully debunked social choice and the welfare state had looked at corporate governance a bit more closely. They're the brains behind Reagan's welfare Cadillac / "I'm form the government, and I'm here to help you!" bullshit.

And alas, Buchanan of all major living economists is the one I like the most -- methodologically speaking. They just ain't no good economists (sorry, Parsi!)


Posted by: John Emerson | Link to this comment | 10- 4-08 6:39 PM
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It always struck me as odd that "public choice" is supposed to be such a devastating argument against government, but the analogous argument is never made against the publicly-trading corporation.


Posted by: Walt Someguy | Link to this comment | 10- 4-08 9:05 PM
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Three weeks ago the Washington Post (and the McCain campaign) were explaining that the naysayers were completely full of it. Three weeks.

What does it say about our nation that it has become political suicide to state the good news that our economy is not in recession?
Whatever the political outcome this year, hopefully this will prove to be yet another instance of that iron law of economics and markets: The sentiment of the majority is always wrong at key turning points. And the majority is plenty pessimistic right now. That suggests that we're on the brink not of recession, but of accelerating prosperity.
Maybe this will turn out to be the best of times -- at least since the Great Depression.

And Luskin will remain a respected pundit. So will the Dow 36000 guy. So will Phil Gramm. And 30-40% of the population will end up believing that the whole problem was caused by the government helping Negroes buy houses. $0% if we're lucky, that is.


Posted by: John Emerson | Link to this comment | 10- 5-08 6:39 AM
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"40% if we're lucky, that is."


Posted by: John Emerson | Link to this comment | 10- 5-08 6:40 AM
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I was curious what Luskin had to say about the crisis, so I looked at his blog yesterday. His verdict? In this, the best of all possible worlds, there is no crisis. So there you have it.


Posted by: Walt Someguy | Link to this comment | 10- 5-08 7:27 AM
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Oh. My. God.

All of this suggests that there is no crisis or overall loss of faith in the credit market..... Nothing about the credit markets seems especially alarming or even much out of the ordinary. .... The main "crisis" concerning the financial markets seems to be in the quality of the news reports about them.

He seems to assume that the problem has been solved. Is he saying that the 700 billion wasn't really needed? Or that there's nothing unusual about coughing up that much money from time to time?

The title of his blog seems increasingly more/less appropriate as time goes on, depending on whether you take it straight or ironically.

I'd like to see an iron-cage death match -- Luskin and Shearer arguing about something they disagreed about.


Posted by: John Emerson | Link to this comment | 10- 5-08 7:39 AM
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Apparently he was arguing that the bailout wasn't needed. 700 bil down the drain. At least there will be extra Christmas presents for the management kids.


Posted by: John Emerson | Link to this comment | 10- 5-08 7:40 AM
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We discover that the bailout wasn't needed in a post that directly follows one blaming Pelosi for its initial failure to pass.

I recently saw someone call Hugh Hewitt the "Platonic shill," and I think that's right, but Luskin strives for that ideal.


Posted by: politicalfootball | Link to this comment | 10- 5-08 8:05 AM
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Well:Crisis? No Crisis!

1) Hypo in Europe, 2nd largest EUR RE lending bank, maybe going down and takin euro with it cause Ger won't throw money away
2) Apparently Ireland by guaranteeing (?) all deposits has a) promised the bogs and shillelaghs and tenors away..they don't have the money b) created a situation where the smart money goes to bank deposits instead of where it is needed
3) Citibank & Wells clawing in court over the carcass of Wachovia? How broke can they be?


Posted by: bob mcmanus | Link to this comment | 10- 5-08 8:18 AM
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As I said on DeLong, I'm just getting used to the idea that there are Republicans worse than Chicago School Republicans. (DeLong is delighted that the Democrats obey moderate economists and thus will get most of the economist vote. )

His charts also showed that about a third of economists are neither Democrats or Republicans. Somehow I don't thin that they're SWP; my guess is, 10-15% libertarians and 20% or so moderate Republicans who don't like either the Republican crazies or any Democrat whatsoever.


Posted by: John Emerson | Link to this comment | 10- 5-08 8:39 AM
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Luskin is quoting other people. I'm guessing because Luskin has no mind of his own.

The guy going on about Pelosi seems to be a political hack. The other guy is some finance dude, who is in the short term, correct: there isn't a credit crisis, yet. There IS a banking crisis.

max
['Bleh.']


Posted by: max | Link to this comment | 10- 5-08 9:28 AM
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The media is now reporting that the German government has just guaranteed all banking deposits.


Posted by: Walt Someguy | Link to this comment | 10- 5-08 10:54 AM
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Does Barry Ritholtz read unfogged? Because the new post seems like it's specifically addressed to James' comments on this thread. Most relevant passage (in all caps, for extra special understanding):

The most significant element were the 2/28 APRs, and their put back provision. Just about all of these gave the securitizer/repackager the right to return the loans within 6 (or 12) months if they went into default. Hence, our proposition that the 2002-07 period was unique in the history of finance. If any of these mortgages went bad within 6 months, the undewriter was on the hook.

HOW DIFFERENT WERE LENDING STANDARDS IF YOU ONLY NEED TO ENSURE THE BORROWER WOULDN'T DEFAULT FOR 6 MONTHS VERSUS FINDING BORROWERS WHO WOULDN'T DEFAULT FOR 30 YEARS.


Posted by: F | Link to this comment | 10- 5-08 11:56 AM
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219:A) Terrified of bank runs;expecting same imminently?

B) Just woke up. Does mean IRL/GER/EUR has thrown the "Shadow Banking System" and derivatives etc market out of the lifeboat?

c) Thus, is this a step before Nationalization, which is Germany's choice, for instance with Hypo, instead of bailout?


Posted by: bob mcmanus | Link to this comment | 10- 5-08 2:55 PM
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Unfoggghhed:Your stop for recipes, romance & family columns, Int'l Banking Crisis, and cockjokes

Calculated Risk says only private savings accounts, which is what Yahoo went with

a commenter

The Irish forced everyone's hands by wrapping a gov't wrapper around all their banks... there have been reports of money flowing our of British banks into Irish banks to get the guarantee.

The ECB better get in front of this, or they'll be an ill-thought-out rush by all EU gov'ts to "protect" their national banks from outflows with such a guarantee. Talk about moral hazard!
DCRogers | 10.05.08 - 12:12 pm | #


Posted by: bob mcmanus | Link to this comment | 10- 5-08 3:07 PM
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220

Default within 6 months is a strong indicator of fraud.


Posted by: James B. Shearer | Link to this comment | 10- 5-08 3:18 PM
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That may well be, James, but the point here is that buyers were protected against default only if it happened in the first six months of a 30-year loan. In other words, they were protected against the kind of fraud you're talking about, but not against anything after six months.

The bubble explanation is a lot more convincing than yours. We were in a bubble, and too many people in various places behaved as though the bubble would last forever, and the internal safeguards and regulatory safeguards all failed, partly because of deregulation.


Posted by: John Emerson | Link to this comment | 10- 5-08 3:31 PM
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221 - My understanding is this: Germany protected only bank accounts for individuals. Ireland protected all deposits, including those for businesses.


Posted by: Walt Someguy | Link to this comment | 10- 5-08 3:51 PM
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224

The bubble explanation is a lot more convincing than yours. We were in a bubble, and too many people in various places behaved as though the bubble would last forever, and the internal safeguards and regulatory safeguards all failed, partly because of deregulation.

I not sure what the big disagreement is here. I agree there was a bubble. I agree that bubble madness led to various forms of reckless and stupid behavior. Among them relaxing safeguards against fraud.

I am not sure what you think deregulation contributed, although relaxing the leverage limit on big investment banks was clearly wrongheaded.


Posted by: James B. Shearer | Link to this comment | 10- 5-08 4:07 PM
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1) There is a comment in the thread linked in 222 that quotes an Irish minister openly competing for int'l depositors.

2) There is talk floating around about nations installing capital controls or spiking interest rates to keep deposits in country. Just talk, so far.

3) Germans save like Japanese, and don't buy equities. Savings accounts. Anecdotes are around about Germans lining up in the morning. Deutschbank is leveraged 68:1

4) Chinese (HK, not sure?) have chosen an interesting response, allowing individuals to short and buy equities on heavy margin.


Posted by: bob mcmanus | Link to this comment | 10- 5-08 4:14 PM
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What Caused the Crisis ...4th in a weekend series at Thoma's

Politics: The left blames Bush, the Republicans, and deregulation. The right blames Obama, the Democrats, and the Community Reinvestment Act. Both sides sound convincing. But both sides are obviously wrong. The housing bubble is global; the financial crisis is global. Russia has a financial crisis, but the Republicans do not regulate Russian financial markets. England had a housing bubble, but does not have a CRA. The US bubble burst first, but other countries are following closely. Canadians watch too much US news. This is a global phenomenon, and needs a global explanation...Nick Rowe

Can I tell Shearer to fuck off? Fuck off, Shearer.


Posted by: bob mcmanus | Link to this comment | 10- 5-08 4:17 PM
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227.3: I heard that. It's a disturbing thought. If that gets lots of play on the news here, we might see the same thing.

If it really happens, I could see the German government announcing a bank holiday.


Posted by: Walt Someguy | Link to this comment | 10- 5-08 6:28 PM
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Have I ever mentioned that I am a peasant with a ptichfork?


Posted by: John Emerson | Link to this comment | 10- 5-08 7:22 PM
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The German government stepped in to rescue Hypo. At some point, it's not going to be possible to keep all the balls in the air. I'm seriously wondering if this is going to be the death of the euro and the ECB.


Posted by: snarkout | Link to this comment | 10- 5-08 7:40 PM
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Is 230 a request for marching orders?

I can see the ECB getting in trouble, but it's hard for me to imagine why this would be the death of the euro. The only way I can see the euro disappearing is as part of a more general collapse of the entire EU, and a return to economic autarky by each country. Which would be awesome, since then I'd get to use the word "autarky" in casual conversation.


Posted by: Walt Someguy | Link to this comment | 10- 5-08 8:10 PM
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224: I not sure what the big disagreement is here. I agree there was a bubble. I agree that bubble madness led to various forms of reckless and stupid behavior. Among them relaxing safeguards against fraud.

There's no relaxing: if they couldn't encourage/support/help create fraud they couldn't make any more money.

I am not sure what you think deregulation contributed, although relaxing the leverage limit on big investment banks was clearly wrongheaded.

Relaxing the leverage limit WAS the deregulation; they torn down the old walls between different kinds of financial institutions, refused to regulate new and exciting scams financial instruments, and generally allowed leverage levels to be set at infinity to one.

I'm not sure why you have such a hard time realizing that most of the frauds (and bad loans) that were committed would have been caught, if the lenders/mortgage houses and whatnot had not been committed to ignoring it. Had in fact, deliberately detuned the application process to allow bad loans to go through.

To get a bad loan requires someone willing to lend. To create a whole bunch of bad loans requires someone willing to ignore all their bad loan checks.

228:

Politics: The left blames Bush, the Republicans, and deregulation. The right blames Obama, the Democrats, and the Community Reinvestment Act. Both sides sound convincing.

Well, I mean, if you're kinda stupid.

But both sides are obviously wrong. The housing bubble is global; the financial crisis is global. Russia has a financial crisis, but the Republicans do not regulate Russian financial markets. England had a housing bubble, but does not have a CRA. The US bubble burst first, but other countries are following closely. Canadians watch too much US news. This is a global phenomenon, and needs a global explanation...Nick Rowe

Yeah: the American banking institutions that have got in trouble are deeply intertwined with the European and other institutions that are in trouble. Currently, the East Asian banks are not in trouble.

232: The only way I can see the euro disappearing is as part of a more general collapse of the entire EU

Depends on how they handle the european banks. I'm not sure either the dollar or the euro will neccessarily disappear, but they can both take immense amounts of damage... and the euro taking damage might in turn cause a collapse of the EU.

max
['I believe they call this ride the Vomit Comet.']


Posted by: max | Link to this comment | 10- 5-08 9:49 PM
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There is a comment in the thread linked in 222 that quotes an Irish minister openly competing for int'l depositors

No, that would be a bank employee. The bank have repudiated his statement and the government are not happy. Probably nothing bad will actually happen to him, of course.


Posted by: emir | Link to this comment | 10- 6-08 3:22 AM
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Focus on subprime, especially unwise subprime (of which predatory subprime is a subset), is was too narrow. It seems to me that the real problem here is unregulated CDS speculation, which is much much bigger than the housing bubble.

Anyone else hear TAL on Sunday? Wasn't that a scary little thing?


Posted by: CharleyCarp | Link to this comment | 10- 6-08 6:39 AM
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Odds on the Dow being below 9000 by Halloween?

Just about halfway there as of this writing!


Posted by: apostropher | Link to this comment | 10- 6-08 12:14 PM
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It seems to me that the real problem here is unregulated CDS speculation, which is much much bigger than the housing bubble.

Well, yeah. 1987-2008 = the big derivative bubble. Or maybe that's unfair. Call it the financial instruments bubble.

Odds on the Dow being below 8000: 2 to 1 in favor! Needs to get down to about (very about) 6k to return to some kind of historical median (ignoring the fact that GDP will contract as well). When it hits 5k it's time to start buying again.

max
['"It's not a loss until you sell it!" said the chirpy stockbroker to my friend. It's not a profit until you sell it, either.']


Posted by: max | Link to this comment | 10- 6-08 4:50 PM
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Now the government is talking about financing companies directly. If the banks and the markets cannot or will not do it, Uncle Sam will.
Why, it's almost like we bought the fucking banks. Except, I guess, the high-muckety mucks of Goldman-Sachs continue to get paid as they sit around waiting for their handouts from the Treasury.

That's very nice for them, don't you think?

max
['It's not like, you know, real money.']


Posted by: max | Link to this comment | 10- 6-08 5:02 PM
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That's very nice for them, don't you think?

Are they posting on Monster? Cuz that sounds like something I could handle. I'll settle for less than $43 million, too.


Posted by: Tassled Loafered Leech | Link to this comment | 10- 6-08 5:23 PM
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