OT: another long off-topic economics thread

Another reason was free money. Unless people have access to financing they aren't going to buy big ticket items and nothing is a bigger ticket item than real estate. When the Federal Reserve lowered the interest rate to 1% it created a tremendous demand for housing. Inflation was at least 2% so by lowering interest to less than the rate of inflation it basically meant that the cost of money was virtually nothing. With all that money available to everyone it created a demand for real estate from all kinds of people who couldn't previously afford to buy homes. It allowed people to buy too much home and it allowed the lenders to go off the deep end and forget everything they knew about the rules of mortgage lending. It also sent the price of real estate skyrocketing because the demand was so high due to so many buyers. Now that the demand has dropped precipitously you can see how much the availability of money affected the demand for homes. Now there is no money to lend and there is no corresponding demand for housing. Proving once again that it's the government that makes everything in the economy happen. By making lots of money available at no cost it created a bubble, which is always followed by a bust. Now we're handing out borrowed money to spark the economy. If only we could get somebody in charge that actually knew what they were doing and didn't respond solely to the political winds of the time.

Hawke

Most of that isn't correct.

Those "in charge" know exactly what they are doing, at least to the extent that these things can be "known".

A couple of those lawyer eggs fell out of the nest and rolled down a steep, rocky hill. The shells were cracked, and the embryos were badly damaged, but they managed to hatch into Cliff and Hawkie. That is why both are so twisted, and never shut up. :(

So, quite obviously, eggs came first.

That's my story and I'm sticking to it...

:)

Damn John C can I vote for you, somebody that knows how things are.

=========== This thought sends a shot of cold p*** to my heart.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

Maybe if you understood the repercussions of letting millions of people have their homes foreclosed on you would think differently. You think it's costing you a lot to bail out people who are losing their homes? If you let them all default it'll cost you a lot more. It'll also cause a lot more problems for everyone else and the whole economy as well. This is a case where "a stitch in time saves nine". Or how about "you can pay me now or you can pay me later". It's a smart move to anticipate problems and head them off before they become disasters. Apparently you haven't learned that one yet.

Hawke

Unless you can prove what I wrote is wrong then it's just your opinion, and one without a factual basis, I might add.

You give them a lot of credit for knowing what their actions will cause. I don't. I think they were as surprised by the bubble they created as they are by the credit crisis that we now have. But then you think they knew and anticipated all of that. Sorry, they aren't that smart or competent. They have a track record. It isn't that good.

Hawke

\|||/ (o o) |~~~~ooO~~(_)~~~~~~~| | Please | | don't feed the | | TROLLS! Plural.. | '~~~~~~~~~~~~~~Ooo~~' |__|__| || || ooO Ooo

Here ya' go, George. This is another domino we never heard about: auction-rate securities. It seems the "auctions" have started to fail, causing such institutions as the NY/NJ Port Authority to start forking over interest payments at a rate of 20%, rather than the 4.3% it was paying last week:

-- Ed Huntress

=============== Thanks for the information. 20% -- the godfather would be proud!

There is an old country saying "never take a fence down until you find out why it was put up."

The regulations such as Glass-Steagal and the reserve requirements were put in place because of exhaustive congressional hearings and extensive analysis by some of the best economists/accountants available into the causes of the 1929 stock market crash / credit crunch and resulting depression.

Unfortunately, Hegal appears to have been largely correct when he observed "But what experience and history teach is this-that peoples and governments have never learned anything from history, or acted on principles deduced from it.

Krugman's throw-away line about monoline insurers should sound yet another very loud alarm, as this could be the start of the great deravitives "unwinding."

There are literally trillions of dollars at risk in this [monoline insurance] sector alone. Two companies MBIA and Ambec represent more than a trillion [with a T] dollars *EACH*.

Why do I keep hearing "Don't cry for me Argentina" (or that "The Sting") playing in the background?

One again the "masters of the universe" have had their party, the people get the hang-over, and have to clean up the mess.

I know how this movie ends....

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

You can just add it to your existing inventory.

Ah, you are a father. I'm not as fortunate and that gives me a litle distance. I can't imagine you are surprised George and if you are, I truly admire your innocence. Personally, I'm a cynic and in the practical sense, that means that 80 percent of the time I'm right and am pleasantly surprised the 2 out of ten I'm wrong.

"Hawke" wrote in news: snipped-for-privacy@corp.supernews.com:

So the government adding to its already astounding debt is good for the economy?

How will the economy be affected when the government starts defaulting on its obligations and can't pay entitlements like Soc Sec?

The debt holders also have the option of holding the interest rate on the ARM's. The debtors have the option of working a second job and cutting back.

Speculators that took out interest only balloons took a gamble and lost. Should the governemnt reimburse everyone that gambles or loses money on an investment?

I'm OK with a bailout just so long as I get paid back in the future. Where is that component of the plan?

To Funny!

They aren't really that smart Ed. Understanding the machanics can be mind numbing so rather than do the hard work of researching things adequately, the relied on the ratings agencies - who also didn't really know their asses from their elbows. Plus, Citi and the others wanted to do these deals. They were under tremendous pressure from several directions at once and took the easy route while hoping for the best.

I couldn't find the interview but here is the verbatim:

"Sarah, if the American people had ever known the truth about what we Bushes have done to this nation, we would be chased down in the streets and lynched." -George H. W. in an interview with Sarah McClendon, June 1992

============== I can't speak for Ed, but for myself it is the sheer size of the grift (and the speed with which it is blowing) that has taken me by surprise.

I expected something on the scale of the S&L melt-down, and while I could see something was about to occur, I did not expect the degree of collusion we are seeing between the ratings companies such as Moody's and S&P, and monoline bond guarantors such as MBIA and Ambac, with the scam artists, which allowed their "Ponzi securities/instruments" to be sold to insurance companies, trust funds and pension funds, which by law are limited to "investment grade [Aaa] instruments.

Also I did not foresee the magnitude and extent of the "perfect storm" / "contagion" worldwide across *ALL* financial sectors. As you indicated in your insightful comments, these "deals" were designedly [and very successfully] highly opaque.

To put the potential and actual losses in some sort of perspective, just *ONE* type of derivative called CDS for "credit default swap" has *RECORDED* notational value of more than 45 trillion [with a T] US dollars. It is estimated that some where between an additional 50 to 200% of non-recorded or "private" CDSs are in existance, but no one knows for sure [yet].

Many of these CDSs are held by the mono-line bond insurers, and through some sort of "circle jerk," they have managed to issue CDSs on each others potential liabilities, show a profit for creating these derivatives, and then hold these as assets.!

see

Contrast just this potential liability with the 2006 *WORLD* GDP of 48.2 Trillion US dollars and the 2006 US GDP of 14.6 Trillion US dollars. Warren Buffet has cogently and correctly characterized these "derivatives" as "financial weapons of mass destruction."

==> Remember this is only *ONE* type of synthetic financial "derivative," and many of your assumed assets such as your pension fund and 401k are now stuffed with these and other financial zombies, vampires, incubi and succubae.

I must plead guilty to being insufficiently cynical [or realistic]. My excuse is that I kept applying the criteria of not confusing malice with incompetence; long after it was [or should have been] apparent that malice [or at least amoral avarice] was [and is] indeed the controlling factor. Thus I was always behind the "power curve."

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

Here is a knee slapper: "(1) CDS of CBOs and CDS of CLOs are included in CBOs and CLOs, respectively."

Like most folks George, you and Ed both want to believe that people without apparent motivation will none the less act avariciously. They continue with this because they have get away with it over and over again.

That was why I've always pointed to the S$L/Junk Bond debacle and it's resolution with such derision. Complete collapse would have been real bad but what was put in place was even worse. Ivan Boesky started publicly proclaiming that "Greed is Good" and to the extent that you can substitute the word ambition for greed, he was correct. Pain is also good. Painful failures curtail the transition from ambition into unscrupulous avarice. Especially if the pain is BIG pain.

Can you even imagine how much worse this all would be had Bush and the Congress put SSI in private hands? WOW, now THAT would really have been something!

========== Even further off topic, but....

Unfortunately, from an operational or outcomes perspective there may not be much difference, except possibly a few months timing.

The current US GDP is around 13 trillion dollars and the official "on the books" national/federal debt is about 9 trillion. Unfortunately, the actual/total federal/national debt, including all obligations [Social Security, Medicare, Resolution Trust Corporation, Highway Trust funds, Indian Trust funds, and a whole bunch more] using accepted FASB methodology is estimated at about

To be sure the US government will fully redeem the special US Treasury securities (and indeed all their financial obligations to the last penny) that are the "Social Security Trust Fund's" "assets," which is indeed more than what may have occurred with a privatized "Social Security" in bankruptcy. However this "difference" is moot, *IF* the "spondulicks," with which retirees [and all the other creditors], are paid are worth nothing.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

Hey. I used to do work for Standard & Poors. I never knew if they knew their asses from their elbows or not. I know they made us (McGraw-Hill) a lot of money.

That surprises me, given the abilities of some of the people at the top. But I think the actual workings of most aspects of high finance would surprise me. Economics is something I'm comfortable with. Finance might as well be on another planet.

As you know, McClendon is kind of an odd duck among White House reporters, but it certainly sounds interesting.

Anyway, thanks for the report from the world above 50,000 feet, John. I'm glad I decided not to go there for a career.

-- Ed Huntress