Forget Confidence — Fix What’s Broken First
Imagine you discover you have a termite problem in your home. The main beams show serious signs of infestation, to the point that their load bearing capabilities have been compromised.
You call in an expert, a professional exterminator. He reviews the homes structure, and gives you the following 3 step advice:
- Paint the outside of the house white with black shutters
- Curtains. Pretty ones.
- Fresh flowers in the entrance way
As ridiculous as this sounds, it is essentially what many economists are prescribing as a cure for the financial crisis. It is ridiculous in so many ways, we can barely begin to count them. Even worse, it points out that the field of economics can be dangerously into absurdity at time. If you want to understand how 95% of economists missed the warning signs about the recession, housing crisis, derivatives threat, and credit crunch, look no further than the misguided obsession with Confidence, and the misunderstanding it reveals of Human nature.
Now, confidence is an important factor in influencing consumer and corporate behavior. When companies are confident about the future, they hire people, give raises, and invest in CapEx. When consumers are confident, they buy homes, durable goods, invest in the stock market, spend discretionary money.
But understand that confidence does not occur in a vacuum. It takes place within the context of a economic environment. People are not so stupid that painting the outside of the house that is rotting from within will solve those problems.You need to fix the fundamentals problems first, and improving confidence will come along naturally.
In this Sunday New York Times, Princeton Economist Alan Blinder wrote: “Because nationalization runs counter to deeply ingrained American traditions and attitudes, there is a danger that it might undermine rather than bolster confidence.”
Let me make sure I understand this: We have lost 4 million jobs in about a year, the S&P500 had its first quarter ever where profits were zero, the government has given away trillions of dollars in ill advised corporate bailouts, credit remains frozen, the housing market is still in the crapper, and the stock market is down by more than 50%, with the Bear market losses now about $11 trillion dollars — and nationalizing the banks is whats going to undermine confidence?
Man, do you even read your columns before you submit them?
Confidence is a symptom, not the cause of what ails us. It is ironic that so many economists make what is essentially a classic causation/correlation error. Healthy economies have confident consumers and businesses; if we shore up confidence, goes this misguided thinking, things will improve. But healthy economies also have expanding economic activity, gaining jobs, wage improvements, active home sales, free credit activity. Confidence flows from the improvements in these basic economic activities; it is not an isolated state of mind independent from the rest of the universe.
In today’s WSJ, Bank of America CEO Ken Lewis makes a similar fallacious argument, claiming that “Nationalization would undermine confidence in the financial system.” And I guess the $45 billion in capital rescues you received from the taxpayer, and the $300 billion in bad paper we guaranteed — that’s bully for confidence, right? Gee, somehow your Op-Ed omitted mentioning THAT. (He must really think people are idiots).
Classical economics made a fundamental error in its key conception of Human Beings, treating them as perfectly rational. It now compounds that error by utterly misunderstanding Confidence.
Fix whats broken, namely the financial system. When that’s repaired, confidence will improve.
>
Sources:
Nationalize? Hey, Not So Fast
ALAN S. BLINDER
NYT, March 7, 2009
http://www.nytimes.com/2009/03/08/business/08view.html
Some Myths About Banks
Nationalization would undermine confidence in the financial system.
KENNETH D. LEWIS
WSJ, MARCH 8, 2009
http://online.wsj.com/article/SB123655575807665985.html
An Amazingly Disingenuous Piece by Alan Blinder on Bank Nationalization
Yves Smith
naked capitalism, March 8, 2009
http://www.nakedcapitalism.com/2009/03/amazingly-disingenuous-piece-by-alan.html
The Mood Always Matters, So Restore Confidence First
TYLER COWEN
NYT, November 8, 2008
http://www.nytimes.com/2008/11/09/business/09cowen.html
November 12th, 2008 at 8:26 am
What is the old saying?
Confidence is one thing, a good right cross is another.
All the confidence in the world doesn’t pay well or give me any more money to spend. Over confidence may one one of the biggest contributors to this mess. Over confidence is killing a lot of retirees right now, that think this is “just a cycle” or the market will “bounce back up”. It isn’t happening until there is work and enough pay to have money to spend again. At least Obama seems to understand that or says he does. I am still shocked at how that escapes Bush and my former party the Republicans.
November 12th, 2008 at 9:07 am
Confidence will rise when consumer cash starts flowing. There are two ways to start cash flowing.
1) Expand the economy through the creation of jobs that add wealth to the economy.
2) Let the fast buck artists figure out where the next big thing is and allow credit to flow there. Available pools of cash and the wealth effect will do the rest.
Option 2 is faster than option 1 and likely to happen anyway, so why not get it started now. Who’s to really say which is better?
March 9th, 2009 at 6:16 am
http://www.hussmanfunds.com/
“This Week:
Buckle Up.
I suspect that the markets are about to get volatile, possibly to an extent beyond what we observed in October and November. The misguided policy response from Washington has focused almost exclusively on squandering public money and burdening our children with indebtedness in order to defend the bondholders of mismanaged financial institutions.
By John P. Hussman, Ph.D.
President, Hussman Investment Trust “…..
Even Dr. Hussman has finally had enough…
March 9th, 2009 at 6:19 am
Fantastic post BR. If you didn’t see it, Ben Stein was on CBS Sunday Morning yesterday and gave an editorial/commentary about how improving US consumer confidence with pull us out of this mess.
http://www.cbsnews.com/stories/2009/03/08/sunday/main4852193.shtml
March 9th, 2009 at 6:20 am
“…. and nationalizing the banks is whats going to undermine confidence?”
rewrite
and rescue’g these banks accounts is whats going to shore-up confidence?”
playing in the background Joe Cockers “I Get By with a Little Help from my Friends”
~~~
BR: You aren’t paying much attention, are you.
I don’t want to target confidence. Instead, I want to FIX WHATS BROKEN.
Recapitalze the banks, elimante the toxic paper, focus on the solid assets.
March 9th, 2009 at 6:41 am
http://www.smartmoney.com/Investing/Economy/Even-Worse-Than-the-Great-Depression/
Ahead of the Curve by Donald Luskin (Author Archive)
Even Worse Than the Great Depression
Another bull bites the dust…
Can you say “Manic-Depressive?”…….
March 9th, 2009 at 6:46 am
…..Blinder also said a lot of other stuff………I think you’re going to be disappointed Barry…..They aint going to nationalize the banks unless they have to…….I’m bound to say after I heard you supporting the proposals of that fathead Shelby my confidence in your policy prescriptions was shaken.
March 9th, 2009 at 6:47 am
Bruce:
When someone states something like this:
“We can’t blame President Obama for the mess he inherited. But we can definitely blame him for making it worse. ”
I make a mental note to not waste any more time listening to them.
March 9th, 2009 at 6:49 am
Japan did not wipe out their banks even though that was the recommended course of action. What makes you think that Washington has the gumption to do anything that makes logical sense on such a large issue, let alone stand up to their Wall Street overlords?
March 9th, 2009 at 7:04 am
Well, call me an Optimist, but, I think it helps to let them understand that they can’t be understood..
as an aside, Blinder has the perfect name to byline such screeds..at least it would comply with the spirit of the “Truth-in-Advertising” statutes..
more seriously, Lewis is a good example of the Real problems we face. I mean, would you(pl.) buy a Used Mutual Fund from that guy? worse, he’s ‘running’ B of A/Countrywide/Merrill Lynched?
we’ve a Serious leardership issue, and it has little, to nothing, to do, solely, with BHO/44..
March 9th, 2009 at 7:32 am
the Titans on CNBC .. Warren & Jack .. digest this
it doesn’t matter from now on if GE survives this slump … what matters is will the stock market ticker of GE reflect it is correctly …… cash usage on our terms from now on .. ie Bonds
the mechanics of the stock market are all messed up
cue The Cars “Lifes the Same I’m Moving in Stereo” immediately followed by “Its All Messed Up”
March 9th, 2009 at 7:45 am
If the largest US banks that are insolvent did not have so many connections to foreign investors and banks, it would be much easier to pursue a nationalization scheme. From what I am reading and hearing, the counter-parties to much of the toxic assets are foreign banks and investors. We know that eastern Europe is on the brink of collapse and that the only institutions able to backstop their total catastrophic collapse are the western European banks which are significant counter-parties to the toxic assets at AIG, Citigroup and others.
I am beginning to think that the reluctance of the Obama administration to act more forcefully with the US banks on the brink is their belief that there is a potential for resulting catastrophic economic failures in eastern and western Europe. Russia is eyeing the potential to bring the former Soviet satellite countries back into the motherland’s fold if they are bankrupted. You have a number of nascent democratic governments that might just implode in eastern Europe if their economies blow up. I think the fear is the inception of a 1930’s Europe with all the tumult and national security implications that would occur in such an event. The Obama administration may be trying to balance the national economic dangers with the dangers of the creation of an unstable world. Obama has shown over and over again, that he takes the long view and refuses to be distracted by the short term. Just a thought.
March 9th, 2009 at 7:47 am
The reason why economists as a class failed?
Imagine if the exterminators in your analogy thought they worked for the termites!
March 9th, 2009 at 7:48 am
BR pondered
Classical economics made a fundamental error in its key conception of Human Beings, treating them as perfectly rational. It now compounds that error by utterly misunderstanding Confidence.
reply:
They are rational. Don’t be ridiculous.
The average person is greedy, lazy, not very bright, wants you to think he is smarter than he really is, expects easy answers to complicated questions, expects quick fixes, and demands as much free stuff as he can get. By ‘he’ I mean ‘he’ and ’she’. Women will slide by as often as men when given the opportunity.
Most will steal anything that isn’t nailed down if they think they can get away with it or talk themselves out of trouble. Things that are nailed down just take a little longer to steal.
They will sneak, lie, bully, stall, manipulate, control, and not hesitate to combine these long practiced skills as required.
If you want to succeed with an economic plan, you have to inspire confidence in these people as well as others who are either honest or just a little slower at sliding by. Most thieves think they are unique and others are patsies. This is the key. Provide a ‘window of opportunity’ for them. Make them think that they will win big over the suckers if they go off and do what you secretly want them to do. In this case, lend and spend. They have to think a big payoff is just around the corner.
Now, all you have to do is come up with an idea that will motivate a lying, lazy, fast buck artist to contribute to the velocity of money, while thinking he is getting over on the suckers.
March 9th, 2009 at 7:55 am
“that the reluctance of the Obama administration to act more forcefully”
probably has more do with their understanding that the vasy majority of the ‘Cained Peep believe what they see on TV and read in their local playpers..
with that, if they pulled the plug on this International Bank Racket, the, Paid-for, Media would, 168., be blaming BHO, et al., for GD ’squared’…
“Imagine if the exterminators in your analogy thought they worked for the termites!”–Paul Jones, above
March 9th, 2009 at 8:03 am
I said:
The average person is greedy, lazy, not very bright, wants you to think he is smarter than he really is, expects easy answers to complicated questions, expects quick fixes, and demands as much free stuff as he can get. By ‘he’ I mean ‘he’ and ’she’. Women will slide by as often as men when given the opportunity.
***************************************
To which I must add …
And all of the big operators excel at getting their stories out on CNN, Fox, CNBC, and other uncritical and cooperative outlets. It would be a lot harder to perpetrate petty and major frauds without a willing media that exists only to sell commercials and fill air time. These media outlets are the definition of useful idiots.
March 9th, 2009 at 8:04 am
Former Fed President Bob McTeer and former FDIC chairman Bill Issac are both strongly opposed to nationalization. They claim that most (if not all) of the big banks have and will continue to have strong earnings power. They suggest that banking authorities need to modify bank capital requirements to compensate for irregularities caused by mark-to-market accounting.
McTeer and Issac are pretty down-to-earth, level-headed guys. When folks like this suggest that it is appropriate to modify bank regulations then you gotta pay attention.
The toxic assets the banks currently carry are clearly undervalued. Warren Buffett speaking on CNBC a few minutes ago said he would be willing to gobble up some of those toxic assets at $0.22 on the dollar. He acknowledges that those assets are grossly undervalued. Given that, the banks are taking a bigger financial hit than is warranted by current market conditions. Even Buffett said that banking regulations are distorting the banks’ current financial situation.
I wonder if Bill Issac’s recommendation concerning “net worth certificates” can play a role here:
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/26/AR2008092602200_pf.html
March 9th, 2009 at 8:07 am
The day I hear Wolf Blitzer tell some flack or hustler “you’re full of crap .. now tell us the truth” and he says it repeatedly over several days to make it obvious his assertion wasn’t an accident, then I will believe the media is not a part of the problem anymore.
March 9th, 2009 at 8:08 am
So Barry, when are you going to get invited to the White House or the Senate? Seems to me they should be listening to their constituents or at least non-economists.
Can we really expect congressmen/women to understand the true financial situation? Afterall, they are regular people and most of them don’t have a background in finance. Most are former lawyers, doctors or just regular people, we can’t expect them to understand how the economy works. Therefore, instead of cowering behind “mob rule,” they need to take a stand and listen to people with new ideas and take drastic steps. That’s the only way to restore confidence, confidence in them that they’re doing what’s needed to right the course.
Saying we don’t want to nationalize the bank because it will hurt confidence is the stupidest thing I’ve heard. Hiding things from the public also won’t do that. If economists are right and truly believe in an efficient market, then clarity would be the one thing we need right now. Investors aren’t investing because they have no idea what’s going on and what’s going to happen. Tell them you’re going to nationalize banks A, B and C, let GM go to chapter 11, resell the assets of A, B, and C, you’ll inspire confidence. Investors will know what’s happening and that now the government isn’t propping up dead banks. Bury them, sell them, move on. I can certainly imagine a world without Citigroup, AIG and GM and it’s not all that bad.
March 9th, 2009 at 8:11 am
Barry,
Very funny stuff! Ken Lewis, Alan Binder et.al. are in fact the termites eating away the foundation of the house. Similarly, they are all “Jacks” now. After growing their beanstalk to the sky (seeds of which were sown on bad soil) to steal golden eggs from the Giant, they spent the past several years hacking away at their beanstalk, utterly destroying confidence in their wake.
And now these wingnuts and faux-economists that lobby for them bitch that we have no confidence in them or the bullshit flimsy beanstalks they call a safe and sound financial system. Hell, if it wasn’t for us taxpayers, there wouldn’t be anything left of their flippin beanstalk financial system. So I say Fuck Em. When the hell we gonna fire these Misfits in the US Treasury and poisonous banks?
And Paul Jones analogy above of the faux economist Binder being an exterminator working for the termites is quite apt!
March 9th, 2009 at 8:14 am
Well, Barry, I think you nailed it — “…confidence does not occur in a vacuum. It takes place within the context of a economic environment. ”
I agree, talk about not understanding the situation… I’ve found myself yelling at the T.V. screen lately, when I hear pundits concerned about the lack of confidence, as if it is somehow unrelated or not a rational reaction to the economic and financial situation people find themselves in.
@ dead hobo 7:48 & 8:03. Wow, I often agree with your commens but that’s REALLY cynical. Yeah, people have those traits, but most have some good ones, too…
March 9th, 2009 at 8:18 am
Nothing wrong with confidence, as long as there’s substance behind it. Looks like we’re heading for another decade of BS.
March 9th, 2009 at 8:33 am
krice2001 Said:
March 9th, 2009 at 8:14 am
@ dead hobo 7:48 & 8:03. Wow, I often agree with your commens but that’s REALLY cynical. Yeah, people have those traits, but most have some good ones, too…
reply:
Everyone learns to slide by as a child. Some get good at it and it becomes a part of their daily life. I know you can probably name a few who don’t show this trait aggressively. I’m sure you can name many who do and I’m sure you can see the disproportionate effect they have on your life. They get away with it partly because people are also sheep and partly because lawyers don’t much care about the character of their clients. BTW, Hitler was said to love dogs. Would this be considered a good trait that offset some of the others?
March 9th, 2009 at 8:38 am
Bank nationalization is a straw man trotted out by both sides to act like there is a debate about what to do. Meanwhile the market takes the appropriate action and drives the bad banks/companies to zero, with or without mark to mark accounting.
As to 95% of the economists missing the greatest market call in history, so what. The real scary part are the 99.9% of the 5% who claim to have predicted this mess. Their solutions, led by political hacks like Krugman is to suggest, not more of the same but trillions more of the stuff that got us into this problem to begin with–debt and leverage. Now instead of the busted consumer it will be the already broke government. Tell me all you interventionist clairvoyants, how many trillions is enough?
Hint. There isn’t enough paper or ink.
March 9th, 2009 at 8:42 am
krice2001,
Being the cynic that I am, my first thoughts in reading your criticism were wondering if you are naive and too trusting in experts somewhere else, or if you were making a defensive move hoping to cause distraction and trying to put me on the defensive. Sorry.
March 9th, 2009 at 8:49 am
Barry,
One of your all-time BEST pieces of analysis; really superb. It’s this level of analysis that keeps me a regular reader of TBP.
March 9th, 2009 at 8:49 am
@dead hobo
Have to agree that people are not stupid in a collective sense. Just look at consumer non-secured credit growth. Flat since 2005, why? They can’t get rid of Credit Card debt as easily as they used to due to the “Consumer protection act”. So they turn do house re-fi You can still walk away from your house with no real penalties, that debt can’t follow you. Apparently the investment banks knew this could be the behavior, so they put in the CDS protection in the act to cover themselves.
It’s starting to look like AIG was the real shill in this game.
March 9th, 2009 at 8:52 am
Yves article on Naked Capitalism was really good. Nice to see a good smackdown of the NYT.
Has anyone else noticed their news QA department (if they ever had one) has been asleep at the wheel more often than usual lately? Obama gives them a six page interview mostly about the economic crisis and the headline is
“Obama Ponders Outreach to Elements of Taliban”
They are slowly becoming the NY Post. Maybe the newspapers dying isn’t such a bad thing after all. I used to really like the NYT, but now I mostly only read the opinion pieces. Colbert already offered Frank Rich a job at his show, maybe them going bankrupt is better for everyone.
March 9th, 2009 at 8:53 am
From Naked Capitalism this am…..
http://www.markfiore.com/zombie_bank_0
The Zombie Bank
March 9th, 2009 at 8:54 am
“The toxic assets the banks currently carry are clearly undervalued.”
gotta disagree .. because here in America – McMansions in a world of increasing energy costs (before the fix is in . well its on its way) .. and the vacations and the illegal drugs purchased with all that borrowing …..
in a world that the Titans are attempting to bring our balance (the American dream) in line and down to world levels (maybe 22:100 is right tho)
johnbougearel – we saw the same movie last night – I did some surf’g – heard that story as a kid – realized later that a focused mind would have been most enjoyable – which means I’ll probably rent it – so I gotta say tv advertising does work
March 9th, 2009 at 8:59 am
dead hobo Says:
“BTW, Hitler was said to love dogs. Would this be considered a good trait that offset some of the others?”
Reply:
Be careful, Dead Hobo, you’ll get the dog-lovers raining excretement down on your head. To them, the answer would be “yes”, which is all you need to know about the fundamental rot eating away at our society. Ask yourself, how many sob stories have you seen about how Fido doesn’t have a home because its owners got evicted?
No society can long stand that treats dogs better than it treats humans, but sadly, that’s about how fucked up our priorities are right now.
For the record, if anything, I think you may be too charitable in your assessment of human nature. Humans are the only animals that have the choice to consciouslydo things that impair their ability to survive. Routinely, they do just that.
I say let the fucking termites eat the structure to the ground.
March 9th, 2009 at 9:04 am
The use of Dogs and Kittens reminds me. The Colbert report with Kramer and the Dogs and Kittens in the back ground. It does work on a 16 month old and 3 year old. They kept telling me Sunday morning about how cute the kitty and puppies were.
March 9th, 2009 at 9:17 am
@Todd:
You can still walk away from your house with no real penalties, that debt can’t follow you.
That is not true of all states. And it is not always true even in California, I don’t believe.
It certainly is not true in Oklahoma. If you default on your house note, the creditor can sue you for a deficiency as part of a foreclosure action.
March 9th, 2009 at 9:19 am
now excuse me I’ll check back with yas a bit later .. I have a couple dozen clocks that need to spring forward … that I’ll be accomplishing between the land line rings (I can hope)(land line this spring anyway)
but advice to the kids (or is this jealousy) – you kids have it so good – a watch music photo video & computer all in one thing that auto syncs – consolidation what progress – screw 2 dozen clocks to sync twice a year – albums that need to cued photos in a box in the basement videos on a platform that need constant migration and surfin from anywhere at anytime – the good ole days are gone
March 9th, 2009 at 9:20 am
http://market-ticker.denninger.net/archives/858-Heh-Mr.-President;-How-Ya-Like-This.html
That dude may think you’re a bit soft, BR, but I can’t find much in that post to dispute…
(we see more CDS jackpot payoffs with taxpayer money, and it’s BLOOD ON THE STREETS, BABY!)
March 9th, 2009 at 9:21 am
That is not true of all states. And it is not always true even in California, I don’t believe.
IIRC first mortgages in CA are non-recourse, but not seconds (or thirds, or Xs)…
March 9th, 2009 at 9:23 am
THANK YOU, Barry. Let’s stop it with the smoke & mirrors for God’s sake. Fix the problems and the economy and markets will eventually recover. Stop rearranging the deck chairs and fixing the drapes to fool the rubes again into gaining “CON-fidence”.
March 9th, 2009 at 9:31 am
By the way, from my experience in big Corporate America, it’s almost never about really solving the underlying problems (for various reasons) but about buying new drapes (e.g. “cost cutting” by eliminating the free bottled water while lavishing huge sums of money on the execs), slapping some lipstick on the pig, moving names around on an org chart, moving numbers around a spreadsheet, namely, kicking the can down the road, and other laughably superficial “changes”. It’s one of the reasons why I checked out after a while. Meeting after meeting after meeting and nothing really ever changes for the better. After all, who cares if the company is rotting from within when the “brand” is sound to the sheeple on the outside? How is it surprising the God-awful state that we find many of our companies then? This is merely in line with that kind of thinking. Our politicians, who are in bed with these people, also seem to think/act the same way. Are we really that surprised?
March 9th, 2009 at 9:44 am
@OkieLawyer
Yes, but you can get the debt discharged or alleviated under chap7. Unlike the changes for credit card debt that you can not discharge as easily and it will follow you after bankruptcy filings. The consumer protection act should be renamed the indenture act of 2005.
March 9th, 2009 at 9:47 am
http://www.bloggingstocks.com/2009/03/06/cramer-on-bloggingstocks-sowing-the-fear-destroying-the-banks/
“So sure, I get it, protect the rights of the shorts. They need protection like the longs. Blah blah, blah. You are reading the first guy who went to bat for these rights. But never forget that I knew why I wanted them.
Because it was just a brilliant way to destroy stocks for profit.
Sorry.
I know the truth. ”
Hrm. Profit for thee but not for we, Cramer? Why would you be stepping up to bat for idiot greedy banks?
At the time of publication, Cramer was long Wells Fargo.
Hrm.
March 9th, 2009 at 9:58 am
…..Reading most of the postings here, the admin’s remark that they are going to make policy based on what’s best for the country and not based on reacting to bloggers makes entire sense.
March 9th, 2009 at 10:04 am
barry, this is so spot-on. i saw Lewis’ piece and i about fell over. wouldnt every person in America write the same thing right now: “why i shdnt be fired. why you shdnt cut my pay”. no member of the working class or middle class is allowed to write such a statement. only our so-called financial leaders. just think if every unruly child were allowed a Lewis: “why a time-out makes no sense in this environment. why i shd be allowed to stamp my feet and brake things. why i should not be forced to share”.
March 9th, 2009 at 10:23 am
Barry, you’re missing the point. You paint the house, add nice curtains and put fresh flowers in the entrance so that you can sell the piece of shit before it totally collapses. Oh, I forgot… it has to be a foreclosure before you can sell it for next to nothing.
March 9th, 2009 at 10:27 am
ottovbvs Says:
March 9th, 2009 at 9:58 am
…..Reading most of the postings here, the admin’s remark that they are going to make policy based on what’s best for the country and not based on reacting to bloggers makes entire sense.
Totally agree!! After having wasted a goodly amount of time this morning going through these comments, yours is the one that makes the most sense.
March 9th, 2009 at 10:38 am
Don’t let the door hit you in the butt on your way out, boys…
March 9th, 2009 at 10:39 am
Barry, one of the best of your many best articles. Thank you for saying it.
March 9th, 2009 at 10:56 am
Ken Lewis: “Nationalization would undermine confidence in the financial system.”
a micro view…
Watched “60 Minutes” last night. Interesting segment about how the FDIC takes over a small bank. Next morning we see some old guy rushing up to the bank doors with a suitcase. Heard the bank’s in trouble. He’s literally going to cash out his money. Doesn’t look too “confident”. FDIC guy sees him..talks to him (not shown)..explains the takeover (problem fixed). Old guy leaves with empty suitcase.
Didn’t seem like his confidence was undermined.
March 9th, 2009 at 11:12 am
@Todd:
Credit card debt is still an “unsecured nonpriority” debt and is still dischargeable under chapter 7. The time frame for “presumptively abusive” was increased some, but that is not the real problem for chapter 7. The real problem is the “means test” which makes it harder for higher-earning individuals to file for chapter 7.
I am no longer actively practicing law (still licensed, but now I work in a non-legal capacity). But I haven’t forgotten everything from my days as a bankruptcy attorney. The main changes were that 1) it is more expensive and cumbersome to file for all types of consumer bankruptcy; and 2) it leads to the sentiment like the one you are expressing: namely, that you cannot get relief if you need it. The NACBA (National Association of Consumer Bankruptcy Attorneys) attorneys usually can steer their clients through the process. All is not lost.
March 9th, 2009 at 11:15 am
@BR; Great comment. It took a second reading to sense the dark side.
Confidence yes. Confidence on the part of the Global Titans that they are firmly in control. Once that’s restored, we can stop throwing money at Zombie banks. That’s all the bailout is about.
CEOs are throwing employees out windows by the hundreds because that’s conventional wisdom of the day. Why be an independent thinker looking beyond your quarterly numbers? That’s too risky. Titans understand image, and that it begins with projecting their all-powerful status. That’s why they endow all these business schools with pigeon inspecting oracles. It’s not about consumer confidence. It’s about Titan confidence.
Let a bank fail, a CEO loses face, not wealth.
Rational expectations, behavioral economics? That’s all Animal Farm manipulative wordplay euphemistically alluding to herding the sheeple. And that’s not about sheeple confidence, that’s Titan confidence the sheeple are in the flock.
So thanks BR for the clue.
March 9th, 2009 at 11:36 am
done with the clocks .. 4 dozen more like it .. Sharp microwave didn’t have to mess with . the lcd is dead .. use it via minute beeps .. I attempted to get replacement part months ago .. that chip/screen is more than a new oven
got one call .. 2010 Census misplaced my ID refile .. FOID & DriverLisc no go .. needed that Pic ID & SocSec card .. saw a hearing on cspan – so I checked on my app last week .. good thing I did .. (I passed both Manage and Enum) .. squeeky wheel gets the grease .. ya right .. no it does .. I Love America and would love a government job right now ….. should look into the Partnership angle (private bid-work) too … second call paper is in shipping boxes (probably) from Chi to Rkf
see 2010 Census hearing if interested:
http://www.c-span.org/Watch/watch.aspx?MediaId=HP-A-16147
March 9th, 2009 at 11:49 am
Brilliant thread Barry!!
March 9th, 2009 at 11:55 am
This whole thread is a classic example of the nearsightedness of Wall Street. Our problems don’t stem from bad banks or incompetent/reckless CEOs.
Our problems stem from the entire Reagan-Bush conservative philosophy that we don’t have to invest now to profit later. Their theory went that the miracle of credit meant that unions could be crushed to relentlessly drive down wages, jobs could be exported overseas, factories could be closed here, American kids could be denied a high school and college education, and our roads could be allowed to crumble. This would keep taxes low, and the average working-class idiot could easily be distracted with enough jet skis (paid for with easy credit) and culture-war politics about the dangers of brown people.
The problem was, it was unsustainable. Even with the most solid financial system on earth, there is no way an economy can sustain itself by borrowing money from abroad to purchase goods manufactured overseas to be sold domestically. The Wal-Mart model works for Wal-Mart, but it’s a cancer on the American economy.
Barry, you’re missing something quite profound: the President is addressing the real problem. Wall Street wants Obama to come up with a way to restore the old older of a tiny overclass and a huge mud-sill class. But the President understands that we’ve crossed that Rubicon. We have no choice now–we must restore a sound economy based on making things here and selling them to the world. The banking system is the tiniest part of the problem. The greatest challenges we face are:
How do we rebuild our education system so we’re competitive again?
How do we finance a massive overhaul of our long-ignored infrastructure requirements?
How do we compete in a global economy against peon-labor abroad?
How do we restructure our health care system so we’re don’t have the least efficient medical system in the world?
How do we break our addiction to oil, which is causing a massive hemorrhaging of precious capital to the countries that hate us?
Banks? I couldn’t care less.
March 9th, 2009 at 12:30 pm
Franklin411
“This would keep taxes low, and the average working-class idiot could easily be distracted with enough jet skis (paid for with easy credit) and culture-war politics about the dangers of brown people.”
hahahahha. so sad, so true.
Go to sweatshopunion.com and loop us the songs “Gold Rush” and “Lead the way”…. you’ll like what you hear…
March 9th, 2009 at 2:05 pm
I attended a fundraising auction this weekend and 90% (if not all) of the 300 attendees said they are consciously spending less because of concern about the impact of additional taxes down the road. It is not just the financial system. Contributing to the weakness is the proposed increase in income taxes due to higher brackets, taxes that will result from programs like carbon tax and trade, loss of home mortgage deduction, loss of charitable giving deduction. These higher income consumers are uncertain about their future cash flow. Why propose higher taxes in a severe economic recession? Consumers have no “confidence” at the moment so they are saving. The small business owners in attendance are laying off workers in anticipation of lower income in the future.
I am trying to understand the rational around the policy coming out of Washington. Is it good policy to propose all these new programs and taxes in an economic recession. If my small sample of 300 individuals is an indication, the top 5% are not going to be the ones to suffer the most as these programs are implemented.
March 9th, 2009 at 2:53 pm
Barry,
I believe what you have highlighted is a perspective problem the elite have. Sure, they’ve taken a lot of economic hits but their houses, cars, land, most investments, antiques, etc. are still with them. They aren’t facing hunger. They are facing an end to a cushy life style. That is the “confidence” problem they are concerned with. Take this comment by Buffett today: “If you don’t trust where you have your money, the world stops,” Buffett said.
The “world” stopped quite some time ago for the unemployed. Buffett wants people with little or nothing to open their wallets. It won’t happen. The people at Buffett’s level are the ones giving the stock market heartburn, not the middle class. These are the people that Buffett and his peers care about.
So Buffett wants some harmony in politics and business to get the economy back on track. Like Mannwich, franklin411 and others here have said, we’ve been on that track for decades and it sucked. Mr. Buffett, this ain’t ovah. When you and yours get it through your thick skulls that Locke, Adams and Jefferson were as much concerned about community altruism and good will as they were about business profit, there will be no progress. Greed sucks.
March 9th, 2009 at 2:56 pm
Sorry about that. I meant:
UNTIL you and yours get it through your thick skulls that Locke, Adams and Jefferson were as much concerned about community altruism and good will as they were about business profit, there will be no progress
March 9th, 2009 at 3:19 pm
…the top 5% are not going to be the ones to suffer the most as these programs are implemented.
When did the top 5% ever suffer the most? French Revolution maybe? Fuck ‘em.
March 9th, 2009 at 4:06 pm
Bravo Barry – one helluva post.
March 9th, 2009 at 8:57 pm
The economy and markets are in trouble because employers and workers have no confidence that Washington or our financial institutions will fix the credit crisis.
It’s apparently politically correct to deny the Obama Bear Market. People who don’t understand markets or market psychology or are just trying to provide some favorable political spin for an inept president are free to make fools of themselves.
Here’s where confidence is important.
1. When Washington is hell bent on raising taxes and creating inflationary budget deficits, businesses kill and delay capex budgets, lay people off and sell their private jets. Consumers realize their wealth and jobs are in jeopardy and move to create rainy day funds and preserve capital.
2. When a new president and his team show incompetence, a total lack of sensitivity to the consumer, capital and stock markets, people stop buying and spending. Dumb people.
3. When previously healthy banks make huge strategic errors by buying distressed competitors, investors sell.
4. When all of the above help destroy $11 trillion in wealth, you know that a lack of confidence in the future has had its expected effects. Of course, there are those who believe that the $11 trillion in losses are just a result of profit taking.
So how can the financial system be fixed, and how can confidence be restored?
1. Washington has to show that it is not intent on making the situation worse. It can do this by cutting spending, promising to not raise taxes and coming up with several plans for fixing the financial system.
2. Washington will help fix the financial system by defanging the Barney Franks, Chuck Schumers and Chris Dodds of the anti-capitalist cabal and by urging American companies to make profits, grow businesses and hire people. Summers and Geithner, among others, must go.
3. Washington will help fix the financial system by coming up with laws and regulations that encourage and reward capital investments, risk taking and the creation of wealth. If the banks and other businesses report profits for the first quarter, celebrate and urge them on. Demonizing big business, threatening to throw people who made business mistakes in jail and looking for ways to redistribute the wealth are not ways to fix the financial system.
4. Obama’s “summits” are frauds and PR stunts. But hold another one anyway. Invite Buffett, Mort Zuckerman, Cat’s Owens and members of The Business Round Table. Listen to them. Give them a chance to explain what they are doing and what they need to fix the economy and financial system and pledge to follow their advice. Boost their morale and the morale of their millions of employees, vendors, competitors and customers.
5. De Europeanize America. Emulate our successful history, not Wesern Europe’s failed economic policies.
6. Let banks and businesses fail and help their survivors fill the voids they leave with creative capitalism, not destructive corporate/state partnerships.
Until businesses and consumers have the confidence to risk their hard won capital, savings and careers, they won’t. They’ll sit on their money and our economy and markets will continue to sink.
A pro-business, pro-profit and pro-wealth economic environment won’t turn things around by themselves. But once the markets readjust to the point that prices look attractive and risk taking offers profit-making opportunities, confidence that Washington won’t step in and stop progress will play a major role in fixing the financial system.
Today, prices still look high, opportunities to make money look bleak and politicians are doing all that they can to make things worse.
March 9th, 2009 at 9:13 pm
I can’t see how anything be fixed until housing stabilises because one of the key problems is valuation of complex securities, many of which are tied to RMBS/CDO etc. However, playing around on the margins with foreclosures is unjust and doean’t ultimately help much. Only Mr Market can determine where housing ultimately stabilises, but there’s at least another 15% to go IMHO. This suggests that it’s going to at least another year before begin to settle and true solutions found. The next step would be to “Fix it”. Another 2-3 years? Looks to me like other than establishing a new direction, many of the specifics of other reforms are going to have to wait for a second term?
March 9th, 2009 at 9:41 pm
business,
It would help if you learned American history. I agree that we should emulate our greatest period of success at generating prosperity–it happened during the era from Franklin D. Roosevelt to Lyndon B. Johnson, when liberalism reigned triumphant. America began sliding during the 1970s under Richard Nixon, and this slide became a collapse in 1980 with Ronald Reagan. We managed to stave off the most obvious symptoms of the complete failure of American political and economic ideology by building a house of cards through credit, and now the roosters have come home to roost.
So I agree with you. We need a new New Deal and it’s time to finish the Great Society that LBJ worked to build.
March 9th, 2009 at 10:19 pm
I just got a copy of The HCM Market Letter by Michael E. Lewitt, by way of John Mauldin’s Outside The Box, March 9th edition mailing. John stated it was the last one to be published in his blog, as The HCM Market Letter has gone to a pay-only subscription in the future.
For me, Lewitt really tied together all the pieces I have had roiling around in my mind about this mess, including cause, effect and fixes. Since I am not a professional investment advisor, I don’t have all the resources to subscribe to multiple newsletters, but I might just consider his. I’m sure most of you have a subscription to it already as paid advisors, so you can read the whole thing (just going to Mauldin’s blog only brings up Lewitt’s subscription). The hard reality within Lewitt’s newsletter was:
“The economy has to be completely retooled, and this process will not happen overnight, particularly because such a program must be directed by a highly inefficient democratic political system that is inefficient in reaching consensus about its goals and how to achieve them. Unfortunately, the deeper involvement of the government in the financial and other sectors of the economy is likely to stifle growth, innovation and creativity and further contribute to lower growth for years to come.” Michael E. Lewittt newsletter (JohnMauldin@InvestorsInsight.com).
March 9th, 2009 at 11:39 pm
Thank you, Barry. You hit it square. Keep slugging.
March 9th, 2009 at 11:47 pm
Ummm, I think what the economists might be saying is that the nationalisation might actually become one of the underlying ills indicated by the symptom of low confidence.
Now, if you were saying that America’s damaged esteem has less impact on the final outcome than the fundamental flimsiness of the banking sector, that would be fine. But you didnt. You said that, by pointing to a new ill the economist was ignoring all the others (which isn’t clear by any means).
March 10th, 2009 at 1:20 am
I don’t think esteem is the same as confidence. Esteem is past/present looking, and confidence is present/future looking, and neither of them refer to forces active in the real world. They only demarcate places where the observation of real forces disolves into emotional conjecture. I think economists use “confidence” to get across some of those parts of their statements for which they know they have no theory. They use “incentive” to get across others.
March 10th, 2009 at 2:01 am
I recall the Sixty Minutes show – a bit of a puff piece in my humble opinion. Designed no doubt, as noted by 10cc, to reassure the public that they can have confidence in the security of their accounts.
However one of the radical suggestions advanced by the head of the FDIC – Sheila Bain was limit the size of U.S. Banks. Surely a counterintuitive suggestion in competition terms?
March 10th, 2009 at 8:16 am
can’t let this thread close out at 66 .. like what does that number mean really .. except its a subplanted bugle call to action ..
thats not what I came to say .. altho that thought has been bouncing off the walls
the peacock station has been playing Warren and his Dec 7th 1941 dont pile on the pork in this war either statement
now the rest of the story
I’ll bet ya that on Dec 9th 1941 there were spending bills flying to Washington to replace the ships and guts
this war is about keeping commerce flowing … but really its WHOs commerce .. or really really MY commerce
March 10th, 2009 at 2:04 pm
It may surprise some ppl but this is the first time I have been to this blog. I couldn’t agree more with this. These confidence arguments are the same as were used in the Depression, even before Keynes was known here. They are made by ppl who measure things by demand instead of supply, and whose idea of stimulating economic activity amounts to bribery. But what to you bribe with, if you haven’t got anything in the first place? It is a Ponzi scheme, no doubt.
March 10th, 2009 at 2:06 pm
Raising capital gains taxes, dividend taxes, energy taxes (CO2 taxes), income taxes, and venture capital taxes, while reorganizing our national medical system and incurring trillions of dollars of debt, does not encourage confidence, no matter what happens with “solving” the banking crisis. On the other hand, proposing decreasing taxes and regulations to induce private capital investment and small business formation would encourage confidence. Ultimately, buying stock is an act of confidence, and if you believe that the proposals of the Obama administration are going to have severe deleterious effects on the economy going forward, why buy?
March 10th, 2009 at 3:41 pm
Funny that he comments that the BofA CEO “must think people are idiots”. The problem is… people ARE idiots. The American culture consists of three people: idiots; greedy, corrupt people who prey on said idiots; and people who realize this is happening but cannot do a damn thing about it except watch the corrupt steal from the rest of us.
March 11th, 2009 at 4:07 pm
Great article, Barry. I’ve been waiting for someone to say this. What I am looking for is not Confidence. I don’t care about “restoring confidence”. What I want is for the powers that be to RESTORE CORRECTNESS.
Correct operation of the markets, correct operation of regulation, correct regulation to begin with, correct valuation of assets, correct prosecution and punishment for those who break the law. Give me correctness, and confidence is automatic.