Links 12/20/08

BBC

Times Online

New York Post. Divorce again reveals details of the lifestyles of the rich and famous.

Dr. Housing Bubble

Financial Times

Floyd Norris, New York Times. Norris picks up on a theme that Brad Setser was on to quite a while ago, that foreign investors are NOT impressed by the less than “full faith and credit” status of agency securities.

Ambrose Evans-Priechard, Telegraph

Niall Ferguson, Financial Times (hat tip reader Don). A must read.

Tim Duy, Economist’s View. A second must read. Some important observations about what the Fed is trying to achieve.

Antidote du jour:

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12 comments

  1. Richard Kline

    Niall Ferguson: “We are having war finance without the war itself.” That is a shrewd summation, which tightens up some wandering thoughts which had crossed my own mind less succintly. Our present historical parallel is to major war financial powers. I invite those interested to look how these war funding distortions invariably end. The skinny: bad down crash, but into sand-in-can bollards rather than bridge abutements. But the takeway is that ‘war funding’ interventions cannot solve our present problem matrix, only kick the true crunch down the calendar a half dozen or dozen quarters.

    Duy’s points, really tea leaf readings but ones informed, are worth sorting through. . . . But in the end these ‘What the Fed intends’ discussions are secondary: The Fed has no idea how this is going to end, and we kid ourselves as well if we—I, or any of us—pretend to much certainty. (Duy doesn’t, I’m not painting with a broad brush here; he is sensibly thinking out loud.) The Fed seems obsessed with manipulations to induce lending by the banks. This is madness and delusion, to me. The banks don’t lend because they are so beyond busted they’re in another dimension. The is kicking a dead cat, and thinking that their is life in the economy because the slowly disintegrating corpus moves more or less forward. It would make FAR MORE SENSE for the Fed to take $200B and charter ten new, solvent, publically owned banks, and direct _them_ to lend as a prop to keep the real economy going. While concurrently winding down the big Busters one by one in a controlled fashion. I and others have covered this ground before, so I’m not inclined to chew over particulars. I do think that this will be the real end game, though: the public authorities launch a parallel and sound banking system. But if they kill our currency first, to lie in the tomb alongside our dead banks, we’ll be fifteen years and many more trials in the transformation, rathern than seven-ten and a merely damned bumpy ride.

  2. Anonymous

    #1) Marie Douglas-David is not that hot. I’d pick you over her Yves.

    #2) The glaciers that are in full retreat in Sweden appear to be in full advance in my back yard with all of this damn snow so far this winter.

  3. RK

    A great deal of the speculation regarding the over
    indebtedness of both U.S. private and public sectors
    has to do with the ultimate consequences for the
    dollar as the principal reserve currency, with all the
    privileges that accrue to such status. The question
    of whether the collapse of the dollar will be orderly
    or disorderly, and come soon, or only gradually
    over a period as long as a decade is also debated. While the U.S. remains the world’s largest economy, the peg to the Yuan, while the dollar floats with
    respect to most other economies (I leave out the
    question of the Gulf), means that in effect, the
    1st and 4th largest economies, with 1.8 billion
    population, have ONE currency. I would very much
    like to hear any comments regarding the future of
    the dollar in the event that this dollar/yuan peg
    continues for the foreseeable future.

  4. Hubert

    re Ferguson,

    thanks Yves, really a must-read.
    Just one point: "Inflation, by contrast, is hard to worry about in the short term, not least because the Fed’s expansion of the monetary base is leading to no commensurate expansion of the broad money supply; the banks would rather shrink than expand their balance sheets."
    1. What exactly does he mean by this general term "inflation"? For a start, it would be helpful if economists would finally agree on what they are talking about when they say or write "inflation": monetary aggregates (which one?), CPI, real cost of living, asset markets or whatever?
    2. And if the Fed walks and quacks like a commercial&investment bank and its balance sheets looks like one, it should maybe be counted like one in the aggregates.

  5. fresno dan

    I see you linked to “Dr Housing Bubble” blog, one of my favorites. If you have never seen his “Real Homes of Genus” you owe it to yourself to take a gander at what homes in CA were selling for. Many of these homes are now 1/3 or less than what they sold for during the bubble.

  6. Anonymous

    The GlobeandMail’s business report included an interesting special project on the origins of MBS. Surprisingly (for MSM), it goes into some detail on attitudes and lawmaking vis-a-vis home ownership. The headline is somewhat misleading, though.

    I was also wondering if anyone knows anything about the whole Parmalat mess and the involvement of BoA?

  7. fresno dan

    “Really High Maintenance”
    I guess I am crass and insensitive, but I can’t help thinking after seeing her picture, except that she is not 50K hot…actually, damn near plain.

  8. RK

    I’ve just discovered I have been unconsciously channeling Brad Setser. I feel like Molliere’s Le Bourgeois Gentilhomme, who discovers that all of his
    life he has been speaking prose.

  9. lineup32

    Niall Ferguson:”Excessive debt is the key to this crisis; it is the reason we are confronting no ordinary recession, curable by a simple downward adjustment of interest rates. It is the reason we still have to fear, if not a second Great Depression, then very likely the biggest recession since the 1930s. We are living through the painful end of an age of leverage which saw total private and public debt in the US rise from about 155 per cent of gross domestic product in the early 1980 to something like 342 per cent by the middle of this year.”

    Last week the wife and I reviewed our home buying in Calif going back to our first house in 1976, a new 3bed 1 bath 1100sq ft purchased for $27500. Which was about 2X my income then. That same house in 2005 per zillow was 600K (all the same) and now 450K in 2008. Could say the same for auto cost pretty much as well but housing prices really tell the story and my guess is that we are headed way way way back to a trend line in housing cost that will cause considerable damage to our banking system and there isn’t shit that anybody can do about it.

  10. Waldo

    Very insightful and intellectual group producing this blogosphere.

    I have had an insight brewing now for about 7 years. I want to share it.

    [I posses an MBA from the most reputable finance department in the world (Midwest institution; windy city).]

    This is the insight:

    The behavior of the oil group specifically within the power base facilitated by the Presidency has performed the most historic heist of all times.

    There cannot be one intellectual reading this little blog comment who can defend the price of crude oil from $147 a barrel to $33 in less than 5 months this year. From a free market point of view – truly impossible. Supply and demand cannot produce this variance. Yet all of us cannot "see" or have the courage to voice our conscious to its origin.

    The non-market price of oil commencing a month before George W. Bush took office and peaking earlier this year was common market manipulation. This manipulation has created some profound distortions in our market (mis-information).

    Understand this about finance: it quantifies, it does not create. The finance market has been operationally cut off due to the rise of oil. The IPO market shut down basically 7 years ago. There was a void that was hard to see. Wall Street possesses the greatest concentration of capitalists in the world. This was created through natural forces over long periods of time. Without real IPO and M&A activity on a typically robust scale the expectational power of investors forced American finance firms foolishly into real estate. Do not discount to much the quality of Lehman Bros.. They were created around the Civil war and survived the Great Depression.

    The amount of stealing the oil businessmen has schemed is profound (on same theme as Enron [energy traders] just much larger and with the use of force). Add to it the Federal Government's consumption of tax dollars due to enhanced military activities (there is a correlation there as well; simply the value of Iraq's oil reserves and our occupation). This to me has been a plan that the finance industry has been a victim of. The frauds of Madoff and such must be criminally prosecuted and are a positive outcome of this heist – "When the tide goes down we will see who has there boxers on", but we must not loose the forest for the trees.

    Ralph Waldo Emerson penned an essay called "Compensation". This little essay is towering. It it truly on par with Adam Smith's "Wealth of Nations" and Milton Friedman's "Capitalism and Freedom". This essay is a must read for our very confused society. His words are clear and are true utterances of genius.

    Roughly stated from the literature "When a country behaves like inmates of a prison there currency will reflect that reality." Our currency has been sending signals of felony misbehavior within our society to the American citizen since the onset to this heist.

    Remove the lowering of the interest rate over the past three years and all things being equal – research the relationship between the increase in oil prices and the fall of the dollar. And any intellectual who thinks that oil follows the dollar is naive or worse. The dollar represents, it does not create or scheme.

    We have serious felonious behavior far above our finance industry and is being coveted by our most esteemed institution; the White House. This should not be to surprising but must be criminally prosecuted. The lesson for us all in this historic past seven years is the profound value vested in a free market by the force of justice.

    May we all lean more towards our character (moral strength) and find the courage to stop these madmen from allowing this to be hidden away for another generation to endure and clean-up. This is another chapter in our maturation of our democracy.

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