Who is to Blame, 1-25
In the thought experiment we did last week, we looked at what the world would look like if the CRA was a “prime cause of the mortgage, credit and housing related crises.”
The usual suspects were unable to respond to that approach.
I have an even simpler query: Who and what was at fault in the entire debacle, from Housing to Credit to Collapse? In what order would you assess the blame?
I don’t mean a soft, squishy, this influenced that who then influenced that guy; I mean a hard list, from most at fault to the least, numbered from 1-20. When you think about all of the moving pieces, and start to assess blame both in absolute and relative terms, the actual blame of real bad guys becomes more obvious.
In Bailout Nation (Chapter 19), my list went something like this:
1. Federal Reserve Chairman Alan Greenspan
2. The Federal Reserve (in its role of setting monetary policy)
3. Senator Phil Gramm
4-6. Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings (rating agencies)
7. The Securities and Exchange Commission (SEC)
8-9. Mortgage originators and lending banks
10. Congress
11. The Federal Reserve again (in its role as bank regulator)
12. Borrowers and home buyers
13-17. The five biggest Wall Street firms (Bear Stearns, Lehman Brothers, Merrill Lynch,Morgan Stanley, and Goldman Sachs) and their CEOs
18. President George W. Bush
19. President Bill Clinton
20. President Ronald Reagan
21-22. Treasury Secretary Henry Paulson
23-24. Treasury Secretaries Robert Rubin and Lawrence Summers
25. FOMC Chief Ben Bernanke
26. Mortgage brokers
27. Appraisers (the dishonest ones)
28. Collateralized debt obligation (CDO) managers (who produced the junk)
29. Institutional investors (pensions, insurance firms, banks, etc.) for
buying the junk
30-31. Office of the Comptroller of the Currency (OCC); Office of Thrift
Supervision (OTS)
32. State regulatory agencies
33. Structured investment vehicles (SIVs)/hedge funds for buying the junk
Several names were omitted for reasons of avoiding repetition: CEOs of major banks and investment firms, the Crony Boards, the AWOL Mutual funds. While the the list in chapter 19 is somewhat incomplete, the book as whole is not.
Given the elapsed time, I might today move some of these pieces around — raise or lower some a few notches. And in the editing process, some items got moved around to for layout purposes (I had Reagan below Bernanke, but due to space limitations caused by other changes, he got bumped to the Clinton line to preserve the already written index).
Regardless, I can live with the above as my list of culprits — what does your list look like?
>
Note: I hope this will be my final CRA post for the foreseeable future . . .
June 29th, 2009 at 10:06 am
#1. The American People, who voted for Reagan and Reaganesque politicians over the last 30 years on the promise of growth without investment.
#2. The American People, who voted for George W. Bush because they thought he was closer to God, because they’d rather have a beer with him, or because they were afraid of the menace of non-whites.
#3. The American People, most of whom do not even vote.
#4. The American People, who would rather watch NASCAR or American Idol than read a newspaper.
#5. The American People, who don’t care about our civil society as long as it doesn’t seem to affect them personally just this second.
June 29th, 2009 at 10:15 am
My list starts and ends with Alan Greenspan and the Federal Reserve. All of the asset bubbles of the last two decades (tech stocks, housing, commodities, etc.) can be traced to Greenspan and a Federal Reserve that held close the cock-eyed notion that real economic outcomes are changed by monkeying with the money. It was and is a lie so pervasively propagated that the Fed (and Greenspan) has probably convinced even itself. Otherwise, they are a most cynical group of liars.
Except for a few short-run effects due to demand delusions incidental to inflation, all that monkeying with the money does (“monetary mischief” as Milton Friedman called it) is change the accounting.
Suffice to say, there wouldn’t have been reasons 3-33 had the Fed and Greenspan not been 1 & 2.
June 29th, 2009 at 10:25 am
F411:
I notice no Clinton or Obama on your list. If the bogeyman for this is solely the American people, then take account of all the actions of these “American people” when deriding them.
Have these same “American people” suddenly become enlightened now that they have done what you wished them too, and elected Bush 3 (just the same as Bush 2, except w/ a tan)?
One day F411, you will grow up and realize your foolishness. Alas, for now, as a storm trooper for Obama, you remind me of the kid in Sound of Music that becomes a Nazi only to crumble before Captain Von Trapp’s steely gaze. You will crumble one day too, because you can not possibly believe the Obama talking points that you post here. Hopefully it will come before you have had the opportunity to do too much damage to yourself or others.
June 29th, 2009 at 10:26 am
I would put Clinton and Rubin at 3 and 4. It’s a tough call whether Gramm deserves higher honors. I don’t have enough info to make that distinction. They drove the reform that brought the house down.
~~~
BR: Clinton signed the legislation which was sponsored by Gramm.
June 29th, 2009 at 10:28 am
@Curmudgeon,
lol. Good one. “Monkey money” is even better than “monetary mischief.”
June 29th, 2009 at 10:29 am
George W Bush should be #1. It happened on his watch. How we keep blaming people many years ago is beyond me? Had Bush ever “communicated” any of these issues and tried to change any of them I would give him a pass. We deteriorated for 8 long years under Bush and he did NOTHING. He did nothing but make worst decisions and didn’t communicate that everyone before him shot us all in the foot. I personally think he will go down as the president that handed over the US Superiority. It definitely happened on his watch regardless of who’s fault it was. I thought the buck stopped there.
June 29th, 2009 at 10:30 am
here is John Carney’s list:
1. Low interest rates,
2. Securitization,
3. a glut of foreign savings pouring into the US
4. lack of yield from other asset classes
5. ratings agencies operating with minimal knowledge but lots of optimism
6. a faith in the ever-rising housing market
7. high oil prices
8. consumers looking to flip high-interest unsecured debt into lower-interest home-equity debt
9. a short-term federal budget surplus eating into the availability of Treasury debt,
10. Fannie and Freddie’s mixed mission
11. the evaporation of profits from investment banking and brokerage
12. unrestrained shareholder demand for high profit margins
13. off-balance sheet financial innovations such as SIVs
14. unconvincing and non-influential risk managers
15. risk-pricing of MBS based on CDS pricing
16. White House dedicated to expanding low-income and minority home ownership for partisan political reasons
17. economists touting the positive externalities of home-ownership
18. a poor understanding that heterogeneous populations have different responses to market movements and over-reliance on centralized and automated mortgage underwriting.
http://www.businessinsider.com/oh-stop-of-course-the-cra-didnt-cause-everything-2009-6
June 29th, 2009 at 10:33 am
Mutual funds.
I knew one individual portfolio manager at a well-respected mutual fund whose portfolio held $19B in assets. Mostly mortgage products. He had no clue how to value them. Neither did the analysts. This is one guy holding more assets than most hedge funds. These people helped enable the crisis.
June 29th, 2009 at 10:33 am
Franklin:
The American People are coming to get you….better get better locks on your doors.
I thought you were just inane…but you are a crackpot too.
Well, some people are multitaskers…
Curmudge:
My list, too, if I were to spend the time, would be exactly the same as yours. 1 and 2 held in check, rest is moot…got in from cutting pastures and checked Barry’s site over the w/e…his choice of esoteric topics has apparently caused a profound apathy in the (as Franklin would suggest) nuts here…
June 29th, 2009 at 10:35 am
I’ll 2nd TC’s comment @ 10:15-
that and the American culture- for its insatiable appetite for “too good to be true” paths to riches and wealth- it seems you can fool most of the people most of the time- they will jump on the next path to riches right after CNBC pulls out all the stops and does the Billy Mays pitch on the next “sure winner”
June 29th, 2009 at 10:35 am
BR,
A prominent omission from your list is Krugman. Between #25 (not yet chairman) Ben Bernanke and Paul Krugman, the deflation fears that were drummed up back in 2003 were one of the causes for sacrificing housing. Let us, in fact, encourage a housing bubble, they said. “We are experts on Japan” the reasoning went, “and the one thing our government should do is prevent deflation at all costs even if it means throwing money out of helicopters or fueling a housing bubble.”
We all know how that ended. Unfortunately, the cycle has started all over again. Except, that one of them now has the levers of the Fed, and the other has a nobel and spouts daily from the Times.
~~~
BR: I am more concerned with actual actions than mere blahblahblah
June 29th, 2009 at 10:38 am
f411 – How about corrupt politicians and corrupt bureaucratic political agencies? How about it doesn’t matter what the American People do (for the most part) because the political system (the three branches) has become to powerful and corrupt?
How about what’s happening in the NY state legislature right now? Political BS that the “people” have no control over.
June 29th, 2009 at 10:38 am
I agree with F411. Whether you’re buying an MBS, buying a house, or voting… The “caveat emptor” principle applies.
June 29th, 2009 at 10:45 am
a nice list indeed but rubin belongs on it. excessive pay on wall street belongs on it as those paid the most garnered more power and were not questioned at thier respective firms as longs as ponzi profits kept coming, china shoulders some blame with not allowing a free floating currency
June 29th, 2009 at 10:49 am
LOL, the thieves and liars list.
[queue Ministry "Thieves"]
June 29th, 2009 at 10:49 am
I certainly have no problem with Barry’s list. We all know that there are many people to blame here; the list is long.
Here’s another take on this blame thing that’s been bothering me lately. There’s this notion that seems to be developing that we’re all to blame, therefore no one is to blame.
It’s not articulated just that way, but that’s the implication. Because there are so many guilty parties in this blow up, there are also many that don’t want blame to be ascribed so that they can go on their merry way. This particularly applies to the banking and finance industry and so many in congress. They’re trying their hardest to spread blame every where they can, up and down the line, to include the foolish/ignorant home buyers and debt addicted America in general. If they’re successful then the great majority will be happy to just let the whole blame thing go so that they don’t have to face up to it themselves, or worse, be held legally/civilly accountable.
Once again, watch out for the building of the “we’re all to blame therefore no one’s to blame” meme.
June 29th, 2009 at 10:49 am
In the thought experiment we did last week, we looked at what the world would look like if the CRA was a “prime cause of the mortgage, credit and housing related crises.”
The credit and real estate bubble are a world-wide phenomenon. IMO it’s necessary to look to shared causes around the world, not nation specific causes. It seems to me that it is beliefs about negative real interest rates and promoting economic growth through loose credit that have spread across the globe like a cultural virus.
~~~
BR: Damn! You came so close!
It wasn’t beliefs about easy money — IT WAS THE EASY MONEY ITSELF! The Ultra-low rates under Greenspan was a truly global phenomena.
Doesn’t anyone understand cause and effect, versus philosphy and bullshit?
June 29th, 2009 at 10:49 am
Please don’t put all these “crises” into one ball. The credit “crisis” is not actually a crisis…it is the unavoidable result of 20 years of Fed easy money and malfeasance and it has not even started healing yet. Given that, you are correct that Greenspan is the prime cause for everything. The housing issue started to form in 2001-02 as housing prices decoupled from all previous valuations. It is most likely the housing bubble could never have formed without the bigger credit bubble in place and without the Fed utterly failing in it role as bank regulator. Whoever decided not to regulate derivatives (again Greenspan heavily involved) is also responsible. All the Presidents from Reagan to W. Bush enabled Greenspan.
Assigning further blame is pointless to me…if you leave the frontgate open, don’t blame the dog for running out.
~~~
BR: Madoff’s lawyer’s tried the same line of reasoning — got their client 150 years!
The idea behind assigning blame is to a) hold the people responsible b) prevent a repeat.
This isn’t for a shits and giggles, its serious business.
June 29th, 2009 at 10:50 am
china shoulders some blame with not allowing a free floating currency
——————–
Assuming it cared about the well-being of Americans.
June 29th, 2009 at 10:53 am
i’d move phil gramm – out of the top 10.
[BR: He sponsored the Commodity Futures Modernization Act and the Repeal of Glass Stegall. Hence, top 10]
move g.w. bush into the top 10.
Move appraisers up to hte same space as home buyers and borrowers.
And the obvious omission is to place real estate salespeople/brokers right in there with the buyers, lenders and appraisers.
[BR: I totally agree about these two — There is a entire section on Real Estate and Appraisal fraud — this is another example of blamees that were moved off the list to avoid duplication.
June 29th, 2009 at 10:56 am
Curmudg and others lay the F..k off F411 … I am sick of it … Obama stormtrooper .. get off it .. Barack is to blame with 5 months in office? .. PLEASE .. you better vote for superman next time who does whats best and ask the question later if you like?
we have got to get ID abilities if blogs are going to amount to much real change
… like to know a salt mine doctor training ground and focus practice – and how some here are world travelers month after month .. and how paid for .. C? S? F? M? U?
“there wouldn’t have been reasons 3-33 had the Fed and Greenspan not been 1 & 2″ that line had some cred … but who is in charge of change around here?
June 29th, 2009 at 10:56 am
@hope
The people are never powerless in this country. Mostly, they simply choose to live in ignorance of what is going on, they choose to vote with their guts instead of their brains, and they choose to remain apathetic. Politicians only have power as long as we invest them with it, and corruption thrives on apathy.
Blaming “the politicians” only feeds that apathy. Why should people try to fix the system? After all, people are powerless, right?
Think of it this way: If a business owner hires a crack addict and alcoholic to drive a truck and the driver crashes, we’d say that both the business owner and the addict are responsible. When the People hire a crack addict and alcoholic to drive the country, however, we’re somehow absolved of responsibility?
No. We hired him. Twice.
June 29th, 2009 at 10:58 am
They’re trying their hardest to spread blame every where they can, up and down the line, to include the foolish/ignorant home buyers and debt addicted America in general. If they’re successful then the great majority will be happy to just let the whole blame thing go so that they don’t have to face up to it themselves, or worse, be held legally/civilly accountable
——————–
If you can’t get them based on their past actions I guess the law will have to get them based on their future actions. Are these people a threat to America’s future? If so, stop them.
Ooops. Our study of the brain is not advanced enough yet to determine the impact of the past on future actions. Oh well!
June 29th, 2009 at 11:00 am
The people are never powerless in this country. Mostly, they simply choose to live in ignorance of what is going on, they choose to vote with their guts instead of their brains, and they choose to remain apathetic. Politicians only have power as long as we invest them with it, and corruption thrives on apathy.
—————–
Not sure it’s a choice. Read more psychology books and less history.
June 29th, 2009 at 11:05 am
who must hang in trend setting blogs?
1> paid watchers for side A side B side C to push a view into the mainstream conscience
2> regular people looking for insights
3> idea people looking for a tidbit for today and tomorrows media grind
4> someone like me that wishes to see a step forward for mankind and pushes ideas for free
June 29th, 2009 at 11:07 am
It could be ignorance or it could be the “culture of optimism”. Everybody loves an optimist…hates a pessimist. I told people a few years ago a major downturn was inevitable. I was labeled a pessimist…gloom and doom guy. Even after being proven right, these same people chalk it up to luck..still call me gloom and doom. Personally, I’d rather be gloomy and right than optimistic and wrong.
June 29th, 2009 at 11:07 am
Your list looks pretty good BR although I would split “borrowers and home buyers” in two to form a “flippers/speculators” tranche that would stay roughly at position 12 with the revised “home buyers” much lower or off the list all together. The GSE’s should probably be there too albeit near the bottom because they were so late to the game and a (relatively) minor factor in the bulk of the debacle, at least as compared to the private brands.
I almost want to split Congress in two as well because they failed in their oversight role even more devastatingly than their policy obligations but that’s probably more of a nit. Still, as I watch the strange antics of our nominal elected representatives, I am constantly reminded of Plato’s observation that “[T]hose too wise to engage in politics are punished by the rule of the foolish.” Personally I am participating more in the political process than I have in years: Opinions on the shape of the earth can differ (ht Brad DeLong) but it is not really ‘balanced’ to concede the point and certainly not when one opinion could lead to far greater harm than the other.
Hope this is the last on CRA for awhile too but I suspect it is a vain hope.
June 29th, 2009 at 11:19 am
@franklin411 “The people are never powerless in this country. ”
Maybe not, but the system is stacked against them. “The people” never got all the information about WMD in Iraq. “The people” never got enough information about the TARP funds. “The people” never got much information about changes in the financial system. Things get added to bills in congress at the last minute. If you read the piece The Great American Bubble Machine by MATT TAIBBI,
“In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 1l,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.”
How do you as a citizen fight against that? In the current system the barons at the top are looking for opportunities to screw “The People” over.
June 29th, 2009 at 11:23 am
@Steve Barry, it’s easier in life to say yes, and it’s more fun. And since we live in a society that values fun and pleasure, why fight it? You sound depressed, how about a Prozac?
June 29th, 2009 at 11:24 am
I’m astounded that “borrowers and home buyers” come before investment banks. That CDO purveyors come way down on the list. I would go easier on Greenspan and the Fed. Otherwise, nice list.
~~~
BR: On Greenspan: BUTFOR 1% interest rates, The Mad Scramble for Yield (Chapter 9) that led buyers to CDOs/CMOs would never have happened.
On borrowers and home buyers — I expect adults who are buying homes can figure out if they can afford the payments. Those people who were unwilling or unable to do this basic math deserve partial blame.
June 29th, 2009 at 11:25 am
@danm,
It is not the job of the Chinese to keep Americans out of debt. They have weathered the Asian flu, the dot bomb, and the US financial crisis better than any of the free floating Asian countries. Their economy has held up well in spite of a currency that has appreciated 20% or more in a span of 3 years. China has had mild inflation or mild deflation for most of the 2000s. If I was a poor Chinese guy, what would I expect my government to do differently?
June 29th, 2009 at 11:28 am
@trooper: correct. How should citizen’s accept the blame for CFMA?
June 29th, 2009 at 11:29 am
BR- why does Hank Paulson get two consecutive spots? i’m guessing it’s because 1) he lobbied for the leverage rule relaxation as head of GS and 2) he then failed as Treasury Secretary. am i right? or is it a typo?
~~~
BR: Exactly (but they are not quite consecutive)
June 29th, 2009 at 11:31 am
@DMR, “if I were a poor Chinese guy, what would I expect my government to do differently?”
If a migrant worker, how about letting you work in the city, give you easy access to residence permits in cities.
June 29th, 2009 at 11:35 am
Franklin – “The people are never powerless in this country. Mostly, they simply choose to live in ignorance of what is going on. Typical fringe left viewpoint.
You assume that if everyone paid attention the way you do that they would believe what you believe. You assume, that because you like to see yourself as educated, that your belief is the “correct” belief. What makes you think for one second, that if everyone had your level awareness or interest in these events, that they would think like you do? Hold the same opinions? Have the same morals?
I am by no means anywhere even close to the right on the political spectrum but I did spend my first 33 years in San Francisco around people like you. People who think that if everyone were as smart, as informed, as politically correct, as you, that they would see the world the way you see it and act accordingly. Anyone not currently sharing your narrow viewpoint is either stupid, uneducated, or lazy. Strip away your mask and what lies beneath, even if you do not yet see it in yourself, is nothing more than self righteous arrogance.
The most depressing part of all of this, is that you are a teacher of children. It’s not only horrifying, it’s sad. It’s people like YOU, as much as everyone Barry lists in his top 25 list that make me fear for our future.
June 29th, 2009 at 11:37 am
DMR:
That’s my point.
Why would you blame the Chinese? By blaming them, it’s like Americans are expecting them to let the currency float to suit America’s needs.
Their goal is to protect their nation. If it means pegging, so be it.
June 29th, 2009 at 11:37 am
[...] 29, 2009 Barry Ritholtz excerpts a list from his new book, Bailout Nation, listing those most directly responsible for the financial [...]
June 29th, 2009 at 11:46 am
@ Franklin411
“#1. The American People, who voted for Reagan and Reaganesque politicians over the last 30 years on the promise of growth without investment.
#2. The American People, who voted for George W. Bush because they thought he was closer to God, because they’d rather have a beer with him, or because they were afraid of the menace of non-whites.
#3. The American People, most of whom do not even vote.
#4. The American People, who would rather watch NASCAR or American Idol than read a newspaper.
#5. The American People, who don’t care about our civil society as long as it doesn’t seem to affect them personally just this second.”
—
Franklin, have you ever watched that show that they air on The History Channel “Life Without People”?
It’s a fascinating show (they cover the subject from a lot of different angles)…
Some of my favorite parts of the show are how, for example, “Lacy” dogs would outlast “Retrievers” because of breeding, or, how Texas Longhorn cattle would find a way to survive over dairy & beef cows (because the Longhorns can eat shrubs and other things, whereas dairy cows don’t even know how to breed on their own anymore and wouldn’t know what to do if they weren’t milked constantly)…How tarpon fish survived the generator shutdown of the New Orleans aquarium after Katrina because they are able to ‘jump’ out of the water to get gulps of oxygen as the water which was not being filtered & oxygenated was turning into ammonia…
Stuff like that…
Anyway, it simply occured to me (based on reading your reasoning – and the population you apparently abhor), that if your CIVIL SOCIETY were to break down, you’d be ill equipped to survive…
It doesn’t do much good to be the spelling bee champion in a barroom brawl…
Simple points to ponder…
June 29th, 2009 at 11:50 am
Another player in the deck of cards – the rating agencies.
Or as my daddy always said, beware of all investments that have to be sold to you.
~~~
BR: Nos 4, 5 and 6!
June 29th, 2009 at 11:52 am
1. Financial firms, including: The five biggest Wall Street firms (Bear Stearns, Lehman Brothers, Merrill Lynch,Morgan Stanley, and Goldman Sachs) and their CEOs, the ratings agencies, Mmortgage originators and lending banks, (CDO) managers, etc., in concert with;
2. Bushco (includes DoJ, FBI, SEC, etc.). This is what allowed the actual theft to take place. Who suborned and and encouraged criminal enterprise, while;
3. Congress (negligent in the extreme — especially, it appears, when led by “conservatives,” like Phil Gramm; also responsible for the continued existence of the Fed), looked the other way, and allowed;
4. The Federal Reserve, including Bernanke and Greenspan (in its role of setting monetary policy, and being the mother of all whores, among other things), to creep into financial/quasi-private/shadow-govermental prominence, in a conspiratorial alliance with their frat brohers at the Treasury Dept.;
5. Paulson, Rubin (see #1), and Summers.
6. Ma and Pa Kettle (for being backwoods fuckwits).
7. Clinton (you do understand the financial ramifications of a blow job, don’t you?).
8. Obama (we really were expecting change).
June 29th, 2009 at 11:59 am
govy
See 4-6. They are indeed amongst Barry’s primary targets.
June 29th, 2009 at 12:01 pm
Franklin411 and Steve Barry have it right, though I would refine the statement that “people vote with their guts” to: “people make too many decisions with their emotions and their egos.
In finance: 1) to make the easy money on residential real estate – like your neighbor, 2) to give your dough to the guy with the recent, big returns, 3) to blame Obama when you didn’t “buy when there’s blood on the street” as he specifically recommended to you…
http://www.usnews.com/articles/news/obama/2009/03/04/obama-says-buy-stocks-now-good-deals-there-for-long-term-investors.html
…when you know that “buying when there’s blood on the streets” is the best formula for long term financial success over the centuries.
June 29th, 2009 at 12:07 pm
@Marcus Aurelius
I agreen that #1 should be Wall Street firms with
#2 Greenspan.
But at #8, Obama, We’re talking about who’s to blame, he wasn’t even president in September 2008. You can blame him for the next few years for fcuking up the recovery.
And #8, backwoods fuckwits?? maybe you should look a map, you’ll notice that the housing crisis happened in the larger cities in Ca and Fl. House prices didn’t double in the Mississippi delta region. Don’t blame Tallahatchie county for the housing crisis.
June 29th, 2009 at 12:10 pm
@Venn Data
“…you didn’t “buy when there’s blood on the street” as he [Obama] specifically recommended to you…
Thanks Venn Data for pointing out the error in EVERYONES judgement…None actually understood the wisdom of the “stockpicker in chief”…
I’ll keep that market call ‘tacked onto’ my bulletin board for future reference…
June 29th, 2009 at 12:13 pm
I have not read much Schumpeter, but the bit I did read appears to be accurate. As does Franklin.
****Schumpeter’s theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism’s collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy. In his vision, the intellectual class will play an important role in capitalism’s demise.****
http://en.wikipedia.org/wiki/Joseph_Schumpeter
Sort of sums up Schumpeter and franklin all in one paragraph.
We did this to ourselves, through our short sighted selection of politicians who promised prosperity they had no idea how to deliver, so they turned to increasingly risky malinvestments or our wealth to keep the illusion that we are a ‘great’ nation going.
At each juncture in our recent history, when hard choices needed to be met, we have always chosen the easy way out, kicking the can down the road. The problem is that the end of the road is a cliff.
I disagree with franklin only in his hyperpartisan tone, but I accept the blame that comes from allowing so much wrong to take place in public policy because I was being kept ‘comfortable’ while it was happening.
All bills eventually have to be paid, and we are the worlds biggest debtor.
June 29th, 2009 at 12:14 pm
@Venn Data
and if you want to agree with Steve Barry…
ask Steve Barry what he thinks about the WISDOM of calling a bottom in stocks based on interpretation of historical norms…
…and if the bottom falls out of equities…Then who’s going to be to BLAME for that? Not that I really care, but it’s not ME calling market lows here…
June 29th, 2009 at 12:14 pm
Is there a compelling reason why my comments are being moderated?
~~~
Editor: Yes, your prior comments ; )
Old timers who have history here have earned their way into unmoderated comments. Newbies must earn that privilege.
June 29th, 2009 at 12:17 pm
long term rates were artificially kept low due to chinese accumulation of dollars. this was a monstrosity as china has a very underdeveloped domestic economy mainly relying on exports. china is nothing but a bubble. had the yuan been floated freely a few years ago it may have strengthened at even a faster pace. now if they float my guess is it would plummet in value.
June 29th, 2009 at 12:19 pm
@kstills, to much cussin? Don’t use words such as fcuking, vaiagra, sozialism etc
June 29th, 2009 at 12:19 pm
trooper:
Okay. Suburban fuckwits.
June 29th, 2009 at 12:19 pm
So……
Are we seeing the right shoulder of a H+S top begin to form, or are we headed higher into the (suckers) rally?
Looks like a 5 wave move developing from 6/23 lows (S&P500).
Probably prudent to watch the next few days before betting one way or the other
June 29th, 2009 at 12:27 pm
At least one theme running through the comments has something to do with a cultural shift. It was said in many different ways but the bottom line is that something has happened to us as a society. We have idolized excessive greed. Accountability and integrity became very low on our value list.
Nothing will probably get fixed until that changes.
June 29th, 2009 at 12:28 pm
@Marcus Aurelius
LOL
I’m MUCH MUCH more comfortable with that…
June 29th, 2009 at 12:29 pm
Not me.
Although I do hold some views that the author disagrees with.
~~~
BR: A goodly percentage of people disagree with me.
June 29th, 2009 at 12:34 pm
@advsys
“…something has happened to us as a society. We have idolized excessive greed. Accountability and integrity became very low on our value list.
Nothing will probably get fixed until that changes.”
—
You’re probably on to something there…At present, the way I’d characterize it is as follows…
Main street has been hammered by this, yet WALL ST., except for a minor blip (and with some help), has seemed to pick itself up and is expecting “business as usual” going forward…I think it’s too early to see, but I think they are underestimating the degree in which Americans are going to be reluctant to get drawn in by their schemes going forward…It was easy to go onto the next theme when there was free floating CREDIT…Now that that’s gone, it’s going to be tougher…
I seriously doubt the markets have priced that in yet…(The ‘disconnect’ between Wall St. attitudes and the struggles of average Americans…
June 29th, 2009 at 12:42 pm
venndata@12:01
It’s possible that March was just a little knee-scrape – MamaObama giving a little spray of “Ouch” – and we’ll be looking at real blood in the next, oh, 3-9 months.
FWIW – I’m a fiscal conservative, manage money for a living, agree with BR’s list, but also agree with F411 and SB’s points (and not some overeducated whippersnapper – first campaign I volunteered in was in ‘72). People in “american society” care first and foremost about their individual comfort, abdicate responsibility to get and maintain it…for ex., for a whole swath of society (outside the misfits who read blogs like this), spending time contemplating/studying systemic problems or how individual choices influence ‘tbp’ isn’t nearly as much fun as, oh, a Snickers bar and ESPN – or a vermouth and PGA tournament. The public education system here made a deliberate shift in early 20th c from teaching ‘citizens’ to teaching ‘consumers’. Oh yes, they – we – cede power, whether they know it or not. Agree, too, with F411 on the the demise of collective bargaining. Easily, the way to keep a population quiet is to convince them that they are alone, and if they speak out or ask for something they will be punished, either physically in a political dictatorship, or economically (losing job) in a financial one.
June 29th, 2009 at 12:55 pm
@frizzione
“It’s possible that March was just a little knee-scrape – MamaObama giving a little spray of “Ouch” – and we’ll be looking at real blood in the next, oh, 3-9 months. :…
—
My opinion isn’t worth any more than that of anyone else, but I see that as a strong possibility as well…
If you BUY when there is “blood in the streets”…You ought to SELL when there’s “blood in your penis”…
June 29th, 2009 at 12:58 pm
@frizzione
“It’s possible that March was just a little knee-scrape – MamaObama giving a little spray of “Ouch” – and we’ll be looking at real blood in the next, oh, 3-9 months. :…
—
My opinion isn’t worth any more than that of anyone else, but I see that as a strong possibility as well…
If you BUY when there is “blood in the streets”…You ought to SELL when there’s “blood in your…*****”
How do I get that last word in? OPP How can I splain it…I’ll take it frame by frame it, to have y’all jumpin’ shoutin’ singin’ it…”O” is for other, “P” is for people scratchin temple…The last “P” well that’s not that simple…
June 29th, 2009 at 1:03 pm
kstills there are words that get the “eye” .. and they change over time .. and we don’t get to know those bad words
another killer is too many links or maybe a link to a known spammer .. 2 links seem safe today
…
I have also been wondering if there are software reader platforms that have the “ignore a poster” function … that somehow removes a person from the thread …. from the blog readers pov and discretion?
June 29th, 2009 at 1:04 pm
While I’m certainly not in love with how BO keeps on the same path of fixing symptoms of the problem, not the problem, I don’t think it’s right at all to blame him for what has happened. Maybe we can do that a few years from today if he continues on this way but it seems wrong to me to do it now.
That said, he can be included in F411’s “American People” post above. His personal financial actions prior to becoming pres. document that he too took part in the bubble that people all over the world were a part of. The Obama’s know all about MEW.
As for the buying when there is blood in the streets, that’s funny someone would claim the reason people are upset with BO is because they didn’t listen to him when he said this, as if he is in any way qualified to be giving financial advice (see my top point)
I agree with frizzione, the 18 month downturn that started Oct 07 was just a warm up, there will be real blood, as he says, when this countertrend rally is over.
June 29th, 2009 at 1:05 pm
Senator Phil Graham! Don’t forget the members of Congress who took the money and passed the legislation which enabled the bubble. The guys who pushed the repeal of Glass-Steagall,etc. They get off too easily on all of this. Yet they are the ones giving up the power of the purse to the Fed and Treasury.
June 29th, 2009 at 1:08 pm
if your posts are not showing up and you posted several times it might be that one of your comments is awaiting moderation? Sometimes it won’t let you post until the comment getting moderated pops up on here. You get the message that you are posting too fast. Sometimes if you do a post with more than 2 links it takes a while to show up on here which could also cause your other posts to be slow or to not come up at all.
June 29th, 2009 at 1:11 pm
ps – a link in the blogger handle can be a problem (blue – of which you don’t have) the old TBP let you put it in on sign-in
each time in .. now there is a external site that handles those registrations and updates the password / handle
fyi – I’m .. http://www.graphicsplus.info .. the old guys here probably remember beacause I’ve had the same handle for over 2 years
back to the thread …
most all of us here have daily jobs to tend to .. even if it is only (hardly only) raising a family .. and keeping an “eye” on every nook and crany to keep ourselves safe is time consuming and NOT MY JOB … until you all make it mine
June 29th, 2009 at 1:12 pm
ben22-
“I agree with frizzione, the 18 month downturn that started Oct 07 was just a warm up, there will be real blood, as he says, when this countertrend rally is over.”
always amused that I’m assumed male in blogs, when in my day I would’ve probably whooped karen in a bikini contest – still might, for that matter
June 29th, 2009 at 1:13 pm
Sorry to be OT but this is my favorite topic (inflation vs. deflation) and I wish BR would dedicate one thread per day on it as it seems the primary question anyone that wants to be an “investor” needs to ask themself:
For the inflationists out there.
Does anyone in this camp have a good explanation for Gold right now? While all the analysts and economists use Oil among other things right now to “prove” inflation/hyperinflation why hasn’t gold set a new high? The March 2008 peak was $1033 and while it came close in Feb of this year at $1007, the QE announcement, much like it failed to work in the bond market, has not pushed gold to new highs. What do the inflationists have to say about this?
June 29th, 2009 at 1:15 pm
Sorry Frizzione!
I thought you would have spoken up when we did the whole, who’s a guy and who’s a girl thing on here about a month ago.
regardless, I still think you are right.
June 29th, 2009 at 1:16 pm
@ben22
“As for the buying when there is blood in the streets, that’s funny someone would claim the reason people are upset with BO is because they didn’t listen to him when he said this, as if he is in any way qualified to be giving financial advice”
—
I don’t anybody really did listen to BO’s “blood in the street” call…Well, maybe some, but even as “lefty” made that call, I seriously don’t think he was making his decision based on the “stockpicker in chief’s call”…
What’s interesting is this though…This whole thread (and about half the threads over the entire weekend are regarding BLAME for the CRA thing)…
Now, if thie equity market turns into yet another bubble (& subsequently unravels)…I wonder WHO is going to make the TOP 25 list on that blame list? Certainly, people in position of power, acting in self interested ways, should make it in there on the first ballot…
June 29th, 2009 at 1:19 pm
ben, gold is manipulated in the paper market; it’s as simple as that… remember how i like to KISS, lol.
next you MUST read doug noland’s, “It is Economic” remember to scroll down to get his own commentary…
“I know better than to try to predict the timing of problems developing in the Treasury and currency markets. But I do see all the makings for the next problematic leg of this financial crisis. As I have written before, our nation’s predicament becomes much more problematic when perceptions turn against the Treasury/agency marketplace.”
http://www.safehaven.com/article-13752.htm
June 29th, 2009 at 1:22 pm
ben22 @115
Missed that one. But, even so, was “guy” the default for those who said nothing? did you only ask girls to reveal themselves? Sounds like the strip poker games in my neighborhood at 13.
June 29th, 2009 at 1:24 pm
Cvienne,
I don’t like to speak for others but I’m 100% certain LB’s call in March had absolutely nothing to do with anything BO said. My comment was directed toward that claim which was made by somebody above.
To your point though, I thought what Steve B. said above was smart, these blame games are a waste of time, the bursting of the credit bubble (credit deflation) was inevitable. Steve makes great posts that are typically one or two lines but that have a lot more to say than what is written.
June 29th, 2009 at 1:25 pm
@ben22
Inflation vs. Deflation
You know I’m pretty much in the same cam with you on this…DEFLATION is the front problem, with INFLATION coming later…
If you’re interested, my opinion on the GOLD issue is the following…
I think it’s a GOLD relative to OIL story…If you compare the price of gold to oil going back to various points (2004, 2006, etc.) you will see that the price of gold has moved up much quicker than oil…
IMO, oil is basically playing “catch-up” (and there’s still a ways to go)…The only point where the two were more or less congruent was “right at the top” of oil last year…
So I think that as the actual DEMAND for oil stays muted, it will keep the gold price from going up much…It may be 18 months out or so…
It furthers your argument that we’re in a DEFLATION environment…
June 29th, 2009 at 1:29 pm
Frizzione,
lol, I don’t even know how it started, I didn’t have to answer since I use my real name for my handle (very creative). In any event, I’d guess that female visitors to TBP are far less than male visitors.
I do think Karen is the best trader on here fwiw.
@Karen,
thanks very much for that link. I have not read the article yet but regarding manipulation this caught my eye:
“One of the things which first puzzles the novice in stock-market affairs is the constant reference he hears on every side to some mysterious ‘They.’ He hears traders say, ‘They’ are buying, ‘They’ are selling, ‘They’ made a killing, ‘They’ are doing nothing. If one ask a trader to whom he refers when he says ‘They’ he will probably reply, ‘The big fellows.’ If pressed for a more specific answer he will say, ‘The big men in New York.’ In reality, the great stock market swings are the result of unseen economic forces, far beyond the power of any man or group of men to control. For fundamentally the stock market as a game is not a game between the big fellows and the little fellows… It is an unequal contest between those who know the game and those who do not.
“On the one side are those who know that stocks ought to be bought when they are low and below the line of real values, and have the courage to buy them at such times. They know, too, that stocks ought to be sold, however attractive they may appear, when they are high and above the line of real values, and have the courage to sell them. On the other side are those who play the game but who do not know, or have not the courage to follow, the principles which lead to speculative success — the sucker public.” — Ch. VII, “Beating the Stock Market” by R. W. McNeel, excerpt. Copyright 1926.
June 29th, 2009 at 1:34 pm
Sen Chris Dodd (Sen Finance) and rep Barney Frank (House Appropriations) were the Democrats who led the committees who gave Paulson the $14 trillion bailout. Although the bubble was created during Phil Graham’s tenure, the democrats followed through with the bailout once they gained control in 2006. Of course they couldn’t have done it without Republican votes. NY Sen Chuck Schumer and many others spoke powerfully AGAINST the bailout, then voted FOR it. Pure theater. The parties united to transfer trillions to Wall St, with a close vote to maximize deniability.
June 29th, 2009 at 1:35 pm
ben, please don’t confuse me with those crying manipulation all the time. also, when big money is accumulating, they have ways to keep the price flat to down…
June 29th, 2009 at 1:37 pm
Systemic/cultural failure.
June 29th, 2009 at 1:37 pm
@cvienne, and what’s the current link between gold and oil? What you saw 2006-2008 was speculation on commodity markets. Oil plummeted during the fall of 2008 due to weak demand and popped bubble. Oil prices have been increasing lately due to renewed speculation and world wide increases in strategic petroleum reserves (China).
June 29th, 2009 at 1:39 pm
F411(@10:56) – When the two political parties we have put up a crack addict and an alcoholic as the two choices, it’s not the peoples fault we have an addict in office.
June 29th, 2009 at 1:39 pm
Ben22 – Is that seriously from 1926? If so that’s classic!
June 29th, 2009 at 1:40 pm
While we are on a different topic, I had really been thinking a lot about BR’s threads on the unemployd’s exhaustion of benefits. I read recently that the number of people that will exhaust benefits will reach nearly 3 mil. by September. So the obvious outlook on spending during the time that was supposed to be the “second half recovery” should be weak at best, after all, our own president said in an interview recently that unemployment would continue to rise so it’s not as if many of these folks will find work by then.
Seems like others are starting to wake up to these facts, WB is now calling for a second stimulus, etc. He knows if anyone does that his investments need it.
June 29th, 2009 at 1:40 pm
We clearly need a new pronoun in the English language to be used in this kind of setting when gender is not known and is frankly irrelevant. You can always use he/she, or him/her, but that’s awkward too and gets rather old.
Please let’s not let this little thing turn into an unnecessary spat over such a petty thing. We’re much too good for that here, IMO.
Any suggestions for the new pronoun? Maybe we can coin the new word for usage here on TBP and get it to spread across the blogosphere.
June 29th, 2009 at 1:41 pm
@karen Says:
“next you MUST read doug noland’s, “It is Economic” remember to scroll down to get his own commentary…”
It was painful just to look at the first 5 paragraphs.
June 29th, 2009 at 1:46 pm
Romer is out crowing about how the stimulus is just getting ready to kick in and we’ll see the effect in the second half. http://www.calculatedriskblog.com/2009/06/romer-big-stimulus-impact-starts-now.html
Uh huh. Sounds like a new campaign to try to pick up the flagging sentiment numbers. “Never fear, help is just around the corner!”
June 29th, 2009 at 1:47 pm
Karen,
No that was intended to be taken that way. Just thought it was an interesting quote.
Thor,
It really is, the books that were written around that time provide some wonderful insight into the phsychological aspects of the marketplace.
June 29th, 2009 at 1:47 pm
frizzione-
http://www.ritholtz.com/blog/2009/05/my-one-year-kudlow-anniversary/#comment-171760
please see susequent comments- the more the merrier- no-one was calling out the “girls” to identify themselves- we love women-
in the future please post the bikini picture so I have a frame of reference
June 29th, 2009 at 1:48 pm
meant to say that wasn’t intended to be taken that way.
June 29th, 2009 at 1:50 pm
Ben22 – no kidding, and here I was thinking the whole idea of market manipulation was fairly new! Thanks for the post!
June 29th, 2009 at 1:51 pm
Yeah, another stimulus package is just what we need. Let’s borrow (steal) some more money from future generations to fix our personal balance sheets (which is where most of the money is going now).
The funny thing is that so many people are saving their stimulus money because they know that this spending will bring higher taxes in the future so they’ll need the money then to pay those higher taxes. It’s a very rational act, but points out one of the reasons that this borrowing is just absurd! I’ve got an idea. Let’s not borrow the money so we don’t have to pay it back later and don’t therefore have to save for that eventuality.
June 29th, 2009 at 1:53 pm
Indeed there’s really nothing truly new under the sun. It’s always intriguing to read historical parallels to present situations. Hoocoodanode?
June 29th, 2009 at 1:55 pm
Onlooker,
Not sure who’s turning anything into a spat – I began with “amused”. And, ended with the same, though I forgot to add
… just how do you add the little yellow ones, again?… Some of us spent a large part of the 70s coming up with such pronouns, which went, well, that you can’t think of any answers that. Besides, as that cartoon read, “on the Internet, nobody knows you’re a dog”. For all ya’ll know, I’d beat karen because I’m unbelievable in drag. Though, admitedly, there have been even fewer of those wandering Merrill Barney’s halls than native XX-ers.
June 29th, 2009 at 1:56 pm
oh, my, it did it for me!
June 29th, 2009 at 1:59 pm
I’m sorry if I sound completely cruel when I say this but I can’t look past Romer’s floppy neck/chin? when she is rambling on so happy and high pitched. She’s flat out awful.
June 29th, 2009 at 1:59 pm
Thor, you really ought to read, Edwin Lefèvre’s “Reminiscences of a Stock Operator” first published in 1923 although he began writing about Wall Street in 1897.
June 29th, 2009 at 2:00 pm
frizzione
Sorry, didn’t mean to offend. Just trying to head off what looked like a possible gender spat. Your 1:22 post sounded a bit sour. I’m glad it’s not and we’re good to go!
June 29th, 2009 at 2:03 pm
Romer is very painful to listen to, IMO. I just can’t take her seriously. She just trots out the same old vanilla economics pablum without taking any risks. Combine that with the political slant and it’s just a waste of time. Like so many others in the mainstream. She very much stays with the herd.
June 29th, 2009 at 2:04 pm
@super trooper
“@cvienne, and what’s the current link between gold and oil?”
B4 I go on, understand that how I view it is just a theory…Everyone is free to create any correlation in their mind they wish…So when something doesn’t seem to “jive” so to speak, I like to try to think out of the box…
Basically, I’ll bullet point a few quick thoughts…
- I believe that both GOLD & OIL tend to get thought of as “weak dollar” trades (whether right or wrong)…
- So the belief is that they should move more or less in tandem (which is often the case)…
- However, from time to time I believe that EITHER/OR market can be the sweeter honey attracting the inflation flies…
- From 2004 to 2008, I believe there was a rush to get invested in gold (considering it had languished since the early 80’s)…It was one asset class that was clearly underinvested (if you even want to call it an asset class)…
- So in 2008, gold hit it’s temporary peak…All the $$ that needed to be in gold WAS IN…
- At the same time (2008), we were still ‘in front’ of the China Olympics…So at the time, the MOST RECENT spec money was in oil (read Rolling Stone article)…
- When the markets collapsed in ‘08, leveraged spec money had to come out of oil FIRST, so it got oversold…
- Gold DID NOT sell-off because even though it’s in the commodity category, it’s thought of as an “armageddon” trade…
- So by December ‘08, oil was oversold and gold had the highest percent invested in it (percentage wise) for quite some time…
I think that’s where we still stand today…Oil has recovered, but nobody is UNDERINVESTED in gold right now…In order for gold to work as an INFLATION trade…trust me…oil will get the first bid…
But as for oil…I don’t believe in the China story right now…Sure, they’re stocking up a little right now on the margin, but I believe the estimates for the entire world are too high…I think when the economy takes another leg down, oil will trade back to between $52 and $40…Whereas, I think gold will maintain (more or less), but probably drift down…
The INFLATION story is a few years away…and frankly, I prefer silver as the play (if you are an inflationista)…And for now, I’m a silver bear…JMHO
June 29th, 2009 at 2:05 pm
Karen-
another money line from your link-
“I’ve got to assume that the marketplace is today much keener to the problematic nature of Ponzi Finance dynamics.”
hmm . . . one would think so- but . . . I wouldn’t put all my money on it
June 29th, 2009 at 2:07 pm
Troy, now that I know the secret of
, I’ll always be sure to include. For my generation, those neighborhood games are impossible to remember without bursting into laughter; it didn’t occur to me that the youngsters here wouldn’t do the same. My goodness, what did you all do for fun? were you already glued to bloomberg for amusement?
June 29th, 2009 at 2:09 pm
Wait! I don’t know the secret
! Help!
I will now resume to making a living. Ahab, I”ll see if I can drag something up later
June 29th, 2009 at 2:16 pm
Thor,
Market manipulation or stories about market manipulation gain in popularity during deep bear markets, as do conspiracy theories and because of social mood they are more easily believed.
For example, lately a lot of folks have tried to attach the low volume characteristic of this rally to manipulation and treat it as a certainty since average volume peaked out in early April. Rallies in a bear market don’t have volume expansion like bull markets do, investors tend to be more selective as prices rise against the larger trend. Is it any wonder this has happened, all the worst garbage companies that made it through to Dec. last year tended to have the largest rises in the early part of this rally, (C for example) so as prices have pushed higher investors have become more selective. This has happened in other deep bear markets, which is what we are in, at least I don’t believe this is a new bull market.
Just my 10 cents, my 2 cents was free.
June 29th, 2009 at 2:19 pm
@ben22
Ben I’m appalled!…You’re in the DEFLATION camp…Your 2 cents should be your 1 cent!
June 29th, 2009 at 2:21 pm
Barry, you continue to dwell too much on the past.
Yes, there is plenty of blame to go around for the mess we are in. I certainly agree Alan Greenspan is the number 1 culprit. But you are far too much of a liberal if you put the American public (at least those who bought homes) at number 12. Bubbles depend upon greed in human nature. How about more responsibility at the individual level????
There is no way this country is going to ever legislate against greed – unless it succeeds in bankrupting us all and making us pawns of the state. This is of course what the academic elite ruling this country at the moment want. Each of the czars sole purpose is usurp power and install the liberal thinking of our so called academic institutions throughout all aspects of all lives. What a joke.
~~~
BR: Funny, some other people criticized them even being no the list. You think they need to go higher
The reason they are #12 — and not 3 or 5 or 7 — is that people should be capable of doing dumb things without bringing the entire system screeching down. Hence, why the CFMA, repeal of GS, Ultra-low rates, Rating Agencies slapping AAA on junk for $, SEC increasing leverage to 40-to-1 — all come higher.
As to the name calling — that is why the default setting is moderated comments for newbies.
June 29th, 2009 at 2:25 pm
blogger / poster “Let’s borrow (steal) some more money from future generations to fix our personal balance sheets”
I am in the camp that repairs need to be made if at all possible .. not just let the chips fall .. there may be nothing (or little) worth salvage’g for future generations .. of course I’m talking my little $ book
say Chernobyl could have been diagnosed before/during to better handle the destruction outcome
June 29th, 2009 at 2:30 pm
Ivan Bowski put the fear into cash traders .. REALLY .. evidence abounds
June 29th, 2009 at 2:30 pm
Hey Ben!
Give me a couple of lines about the buying in the long term treasury market…I’d appreciate anything you want to share.
B in T
June 29th, 2009 at 2:31 pm
Ben22 – good point – I’ve always been fascinated with old stories being new. I remember an entire two hour lecture on the difference between government reported unemployment versus “real” unemployment. This was back in 1992. Also love all the “America is in decline” stories, these go all the way back to the Civil War. Granted, things may be different today, but by-line stays the same.
Karen – yes, I really should bite the bullet and read up on some stock market history or at least some economics 101. I have to admit however, that although I am a voracious reader, I tend to cycle between fiction and non fiction and am having a hard time breaking out of my current fiction cycle. Might have to do with the fact that the pertinent non-fiction I should be reading today is fairly depressing.
June 29th, 2009 at 2:37 pm
Bruce, a great place to check the daily bond story: http://acrossthecurve.com/ Bookmark it!
June 29th, 2009 at 2:38 pm
@Greg0658
There are clearly two camps:
1. Those who cannot fathom the possible dark depths of “not doing anything (or doing too little)”.
2. Those who envision that “digging a deeper hole” will lead to even MORE unfathomable & darker depths in the future.
Neither prospect is very cheery.
I suppose it would be IMPOSSIBLE to “not act” (if you find your own self with your hands on the steering wheel at present)…So that’s where we’re going to go…We’ll act to avoid scenario #1 and thereby likely create scenario #2…
The rest is all just finger pointing…It’s become our national pastime…
June 29th, 2009 at 2:41 pm
@Thor
“Might have to do with the fact that the pertinent non-fiction I should be reading today is fairly depressing.”
If I can figure out a way to spin it into a Dr. Seuss rhyme would that help?
June 29th, 2009 at 2:41 pm
Thanks Karen! You are a good woman, no matter what Thor says…..
June 29th, 2009 at 2:42 pm
cvienne – “The rest is all just finger pointing…It’s become our national pastime…”
I’ll second that
June 29th, 2009 at 2:42 pm
June 29th, 2009 at 2:44 pm
Bruce – smart ass
June 29th, 2009 at 2:44 pm
Bruce,
Just two quick thoughts.
There was a chance to sign up for Rosenberg’s letters at his new company while they are still giving them for free on a trial basis ( I doubt that lasts very long) in his most recent he’s calling for 2% something on the 10 year bond. He has a lot of commentary on the bonds that is probably worth a read.
I have also seen a lot of the better hedge fund managers say that they are looking at long treasuries as well, then again, there are some notable managers in that space that seem to be going the complete other way.
Lefty was all over this recent move in treasuries, I was looking to buy TLT a few weeks ago but never pulled the trigger, I ended up earmarking that capital to a silver short instead, that ended up making me more anyway.
@Thor,
The other book that Karen rec’d above is a really good one. Often times I hear people that say you can’t compare now and the depression because it was a different country or a different economy however, human emotions, imo, don’t evolve. So while economies and markets will change, social mood, which is the driving force behind it all, tends to “rhyme”, as a pretty good writer once put it.
Inflation/Deflation
Interesting video in the video section here at TBP on this topic, the setting of the video reminds me much of the Zeitgeist video’s all over the web. Inflation is now possibly the most crowded trade ever, seems like it is right up there with tech and real estate.
June 29th, 2009 at 2:48 pm
benn22 – “human emotions, imo, don’t evolve. So while economies and markets will change, social mood, which is the driving force behind it all, tends to “rhyme”, as a pretty good writer once put it.”
I agree – you often hear people argue that times are different today because of the speed at which data and news movies compared to the 1930’s. Although I would concede that point, I would argue that this is more than offset by the speed at which legislation was enacted and acted upon 70 years ago. Today the pace at which any meaningful reform is put through is glacial.
June 29th, 2009 at 2:52 pm
@Thor
“Today the pace at which any meaningful reform is put through is glacial.”
What do you expect when 435 representatives and 100 senators (from BOTH sides) have to get in there and add pork to something?
June 29th, 2009 at 2:53 pm
cvienne – don’t forget lobbyists and special interests
June 29th, 2009 at 2:53 pm
Thor,
as for legislation, don’t worry, the admin. should help push my deflation thesis right along in the fullness of time. Just be patient for it. Look what they did with GM! Even the move they made with the senior debt holders will have a deflationary theme for years to come.
Remember that legislation in the markets is never proactive, only reactionary, just like the Fed doesn’t make interest policy, they let the bond market tell them what to do. Don’t fight the Fed would be better stated as don’t fight the bond market. Glass-Steagall, for example, was put in place to prevent a collapse like the GD from ever happening again, and it was done when the GD was basically over, it was repealed right at the time it was needed most.
June 29th, 2009 at 2:56 pm
@All
Don’t look now, but with 1 hour to go in trading, the VOLUME is set to come in way lower than even Friday (which, I think was the lowest volume day since January 2nd)…I’m going off the top of my head there so somebody chime in if I’m wrong…
June 29th, 2009 at 2:59 pm
@ben222
“Glass-Steagall, for example, was put in place”
Oh no ben! You said Glass-Steagall…We’re trying as hard as we can to move AWAY…AWAy…AWay…Away…away…***y…
June 29th, 2009 at 2:59 pm
Ben22 – Funny you should mention that. I’ve often wondered if the administration knows full well what it’s doing right now with the “re-inflation” scheme. Maybe they know the American psyche better than we think. Run up equities again, get the banks our of TARP, watch oil spike again then sit back and watch it all come crashing down again in the not too distant future. Then all they have to say is “look, we did our best, we tried to save the banks, we tried to let them get by with light reform – look what happened, it all came crashing down again – now we need to break them all up so we don’t have yet another collapse a year from now”
Crazier things have happened when it comes to political calculation.
June 29th, 2009 at 3:02 pm
Thor,
You give them way too much credit, I don’t think they have a clue nor does that sound like a very good political strategy (then again I know nothing about that). They are doing their best to react to everything like I said above. They have reacted like champs so far. The end result, since they only keep going after symptoms, not the problem, will be failure.
Cvienne,
People may want to get away from that kind of stuff but the social aspect that results after such moves clearly has a meaning worth discussion.
June 29th, 2009 at 3:06 pm
Thanks Ben.
June 29th, 2009 at 3:14 pm
@ Karen:
Thanks for the “Its Economic”… good stuff.
All about perception now isnt it?
Funny how you can point to all the fundamental and technical data out there for causality and what “might” happen… but the intangible “perceptions” are most powerful… change perception, and watch the tide change faster than deemed possible.
Kinda makes you wonder how far off the day of reckoning is when the phrase… “backed by the full faith and credit of the USG” will lose its “bulletproof”… perception.
Kinda scares the shit out of you.
June 29th, 2009 at 3:14 pm
@ben22
Agreed…It’s just that people keep churning it back into the butter of partisan politics…I feel like I’ve read the same thoughts (on both sides) about 1,000 times each already…
June 29th, 2009 at 3:17 pm
@ Karen:
One more thing… do you have DUG trading down to 17.25-17.50 for your next buypoint? Was thinking about opening some here… but will respect the pattern.
June 29th, 2009 at 3:18 pm
i’ll blame “the people” too, but not out of partisan hackery. i’ll blame most people for not getting and staying educated on matters of the economy, of government, of personal finances. we’ve allowed ourselves to be seduced by chimerical “wealth” that was no such thing; it was credit that we couldn’t afford.
June 29th, 2009 at 3:18 pm
cvienne,
930 is pretty close buddy.
June 29th, 2009 at 3:20 pm
it was credit that we couldn’t afford.
DING!
June 29th, 2009 at 3:23 pm
I-Man, i bot a second piece of dug at 18.34 today. it’s all the dollar right now as far as i can tell. let me know when you’ve got that one figured out : )
June 29th, 2009 at 3:23 pm
@ B22 + CV:
To I sites… 930 looks like a right shoulder… the first one. There will be another.
Kinda weird… the first time I’ve been net short and actually wanted the market to go higher…
June 29th, 2009 at 3:26 pm
@ben22
“930 is pretty close”
I know, I’m watching it…The volume is awful anemic today…It’s something like the 2nd lowest volume day of the year on the SPY…The past 4 days are way below average as well…
On the other hand, crude WENT PAST doing a .618 FIBO retrace to the previous high…If the S&P follows suit, 930 may be broken…I’m going to watch the VOLUME as it hits 930…
Another part of the equation is the DOW…The S&P is positive for the 1st half, but I think the DOW needs to get up to 8772…I want to see “if” and “how” it threads the needle technically…
I’m flexible
June 29th, 2009 at 3:29 pm
i might not have buyers and borrowers as by them selves they can do nothing. but replace them with speculators some where on the list. and i would break GS out by it self. and add JP Morgan since they participated heavily and was the prime inventor of financial WMD
June 29th, 2009 at 3:30 pm
And where should we put MSM? They did not ring the bell loud enough to make J6P think twice, IMO. I’d even like some university presidents to think you should have done a better job uncovering this mess.
~~~
BR: They are the messenger, not the actors. There is no doubt they could have done a better job, but they did not cause the problem.
June 29th, 2009 at 3:31 pm
@ Mistress:
I gave up on that one. Too much fundamental blase and foreign central bank chicanery going on with the dollar. Let me know when it breaks or breaks out.
You can probably just watch crude and get your answer… and you know how that looks.
As per gold, my view intuition and chart wise: going higher… but dollar going up couldnt possibly be gold bullish could it? Or could it?
Thats the more important question IMO. Hard to look at that Inv H&S and not put a 1300 handle on gold… regardless of what the dollar does.
Its an interesting paradigm we are entering here.
June 29th, 2009 at 3:31 pm
should have said “to think they”.. sorry
June 29th, 2009 at 3:32 pm
I-man,
Andy T made a worthwile comment on the H&S pattern the other day. Everyone can see it/them and he made the prediction that it is such a common pattern now that there will be less and less of them moving forward.
I’m not long or short right now, even my own money is sitting mostly in some real short term debt along with some UUP and I’m just picking trades here and there like the silver short. I was trying to find an entry point for a trade in BA or MON but haven’t done anything there yet. The DOW was trailing the S&P and Nas recently and now it seems to confirm the move up with them both. Going to be an interesting week, these short weeks tend to be pretty rocky according to my trading notes.
Like Karen said it’s all about the dollar.
June 29th, 2009 at 3:33 pm
I will point out the ugly candle on the $tran.. maybe confirms friday’s “top”/turning point. the $wlsh, on the other hand is looking pretty strong… and bizarrely, the $xal is treading water nicely with crude at $71? uup is making me seasick.
June 29th, 2009 at 4:44 pm
Greenspan and Fed – definitely right to be #1 and #2. I’d swap the two though, given that the Fed has a history of bad monetary policy, and Greenspan wasn’t acting alone in his moves.
I would definitely put Barney Frank on the list, due to his influence over Fannie and Freddie in pushing them to loosen their lending standards.
IMO GW Bush is too low – the ball was rolling by his tenure but still fairly slowly – he really pushed it much faster with the “ownership society” initiatives, and going along with the Greenspan/Fed policy. I’d put him ahead of the ratings agencies, SEC, and Gramm.
I’d put in a vote to include FDR on that list too even. He really grew the precedent of Federal government backstop of financial institutions, most notable including the creation of Fannie Mae, which laid the table for the risk game that was ultimately inevitable.
f411 – if you’re going to be so generic as to blame “The American People”, why not blame their parents, who bred them and raised them? But then you have to blame their parents’ parents, and their parents, etc – back to Adam and Eve or monkeys (whatever you believe). Spreading the blame so generically is just an attempt to water down the original conversation. In the end we have to get specific; The American People didn’t all of the sudden have a mass ethics violation; they were led/lured there by things like low interest rates, tax incentives, etc. with enabling by loosened lending etc., that all had specific authors and promoters.
June 29th, 2009 at 5:01 pm
packman-
but- Fannie Mae was privatized in 1968 to get it off the government’s books- only to find out circa 2008 that Fannie and Freddie were not private at all- that they were backed by the full faith of the USG- implict gaurantee??? Pulease- that’s just silly- it’s an explicit guarantee-
now let’s just bring all that debt on the government books so we can acknowledge what everyone knows- but that won’t happen- that would make us look insolvent
June 29th, 2009 at 5:18 pm
packman
quote: “Spreading the blame so generically is just an attempt to water down the original conversation”
Yep, that’s one of my big “watch out for”-s these days. If everyone’s to blame then no one’s to blame. And the real culpable parties skate by. That’s surely what the banksters are hoping for. And it’s also what the irresponsible consumers are hoping for too. They want hide in the “everybody was doing it”,
June 29th, 2009 at 5:19 pm
packman
quote: “Spreading the blame so generically is just an attempt to water down the original conversation”
Yep, that’s one of my big “watch out for”-s these days. If everyone’s to blame then no one’s to blame. And the real culpable parties skate by. That’s surely what the banksters are hoping for. And it’s also what the irresponsible consumers are hoping for too. They want hide in the “everybody was doing it” and “who could have known” excuses.
June 29th, 2009 at 5:42 pm
See what happens when LB takes the day off? Half the people are discussing the motivation for my LB Bottom™ call and the other half are talking about whupping Karen in a TBP bikini contest. Wowza. I guess the market was a yawner…
My motivation for the LB Bottom™ call, for those who are interested, was really based on sentiment extremes, the kind that Barry likes to analyze, and the fact that the yield on the S&P was around 6% at the time with the 10-year at 3% or less. It’s true that the Prez observed that stocks were cheap around that time, and indeed they were – at the time. For me, the Jon Stewart-Jim Cramer smackdown represented a sentiment extreme and also an awareness extreme – the fact that everyone AND HIS DOG was watching the market, which normally happens only at bottoms, and maybe a bit at tops.
Now the bikini contest – that sounds like a challenge, but it is hard to believe that Karen would take a beating in any contest, trading, bikini, or otherwise. Highly competitive, our Golden Girl. At least that’s my guess.
Interesting to hear someone calling this morning for a 17% rally in the dollar before year’s end. That can mean only one thing for equities and commodities.
June 29th, 2009 at 5:47 pm
back from errand running and cruzin by the empty storefronts and the big car lots (partially filled) around the big box stores
1 – 25> TBTFight should be in there .. Merge&Acq into Too Big To Fail / Fight … on top of robotic industrialization and globalization of human labor .. the whole process is wringing out excesses
poster “blame their parents’ parents, and their parents, etc” .. good one … thats part of it too .. tell me capitalists what happens to something that there is just to much of?
June 29th, 2009 at 6:50 pm
I’ll tell you who is to blame. NOBODY!! That is what our Government wants us to think. The same attitude of getting to the bottom of this financial collapse is no different than the apathy used to insist our southern border can not be secured.
THEY DON’T WANT TO KNOW…..WHO IS RESPONSIBLE. THEY THEMSELVES MIGHT BE IMPLICATED. WHY TAKE A CHANCE!! THIS WHOLE DAMN THING WILL EVENTUALLY BE SWEPT UNDER THE RUG. SOONER THAN YOU MIGHT THINK.
Sad but true. OUR so called GOVERNMENT will only get to the bottom of this when their slimy backs are pinned to the wall. As for our southern border…it will be secured the SECOND they decide it needs to be secured but not before. What I see happening is a WMD crossing our southern border and then someone WILL PAY because the desperate masses will be knocking down doors trying to locate who was ultimately responsible for allowing this debacle to happen. It is the same old, same old. We fuck around until something bad happens and then refuse to hold anyone accountable.
In summary, WE’RE JUST STUPID BEYOND BELIEF!!
June 29th, 2009 at 7:12 pm
You are my hero, Barry. Great list…
June 29th, 2009 at 7:57 pm
1 Lending banks
2 Mortgage originators
3 Mortgage brokers
4 Appraisers (the dishonest ones)
5 State regulatory agencies
6 Borrowers and home buyers
7 Federal Reserve Chairman Alan Greenspan
8 The Federal Reserve (in its role as bank regulator)
9 Office of the Comptroller of the Currency (OCC)
10 Office of Thrift Supervision (OTS)
11 Federal Bureau of Investigation
12 The Federal Reserve (in its role of setting monetary policy)
13 n/a
14 n/a
15 n/a
16 n/a
17 Republican Congress from 1994 to 2006 for:
whining about Fannie Mae and Freddie Mac and
failing to do a d*mn thing about them;
allowing banks for forgo payments to FDIC insurance
in good times;
in general failing to provide legislative oversight
of regulatory agencies
18 n/a
19 n/a
20 n/a
21 n/a
22 n/a
23 Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings
24 George W. Bush Treasury for allowing
shawdow banking participants to lever up 30+ to 1
25 The five biggest Wall Street firms (Bear Stearns, Lehman Brothers,
Merrill Lynch, Morgan Stanley, and Goldman Sachs) and their CEOs
June 29th, 2009 at 9:18 pm
I don’t know if you have any contact with him, but I’m wondering how Ed Seykota, legendary trader of Market Wizards fame, would respond to your “Who is to Blame” question, Barry. You might want to ask him, as the answer would no doubt be both enlightening & entertaining.
June 29th, 2009 at 9:23 pm
I’m sorry but when the list is that long, it’s systemic plain and simple. If you think 1 person/entity out of all of these players could have stood in front of the moving train and stopped it, you are completely deluded.
I just don’t get the point of this exercise. Is it to find THE culprit and hang him/her or is it to understand what happened and fix the problem?
And even if you find THE culprit, what good is the hanging going to do? You’re just going to piss off posterity and plant the seeds for future retaliation. That’s the history of mankind.
June 29th, 2009 at 9:50 pm
Karen,
Doug Noland has always made a lot of sense. Things unfolded about the way he figured, but that damn timing problem again!
The tanman-0-meter is on buy once again as I dumped my SSO today. The last buy, after flopping and chopping for a couple of days, promptly lost about 50 S&P points. The last sell signal went out at 25.1. I guess everything eventually stops working as you get older! Some of it good.
June 29th, 2009 at 10:32 pm
BR a large broker decided years ago to take a casino junk bond, run it through a bank for a quick fee to get it upgraded to AAA by a rating agency (suitable for a bank loan) and quickly sell it off to the unsuspecting. It worked so well that it was soon expanded to mortgages etc. They devised bundling to get it out of their hands and into the unsuspecting. Most everyone soon caught on, knowing it wasn’t kosher, but prospered knowing that there was always a market and could be passed on. Thus, appraisers knew thay had to come through, rating agencies, loan brokers, banks, real estate brokers all joined in the game of pass it on. Then the game of musical chairs came to a halt. And, yes, the govt was involved as it gave the enablers, the bundlers, the excuse and inspiration and the cover for pursuing the biggest Ponzi scheme ever by passing these on. I’m an 86 year old retired public accountant and am not shocked.
June 29th, 2009 at 10:37 pm
I have to agree with the Franklin411 fellow. Americans have to be the laziest bunch of…uh, voters in the world. If we lose everything we deserve it. IOW, we’re begging to be mugged.
June 29th, 2009 at 10:39 pm
Well, then I read danm at 11AM and he said it a lot better than I did.
June 29th, 2009 at 11:29 pm
@Franklin411
Congratulations for getting your students to get online and agree with your posts for EXTRA CREDIT on their grades…
You’re “helluva” persuasive…
June 30th, 2009 at 12:02 am
These comments are really long but I wanted to respond to the BUT/FOR cause naming the extended 1% rate. BUT/FOR that we might not be going through this now, but that does not make it the proximate cause (to keep it legal). That may have caused the explosion but we have been building the bomb for decades. Don’t forget bubbles happen, this was a perfect storm. By suggesting that certain Fed Policy was the key reason for this backwardly shifts blame to the policy of the FED and not the fact that the FED has the power to do this. We have system where if one man (Greenspan here) makes a mistake, for any reason whatsoever, it can lead to dire consequences all throughout the system. One unelected official in one position should not have the much power. This is a systemic problem that turned cultural, or vice verse, I don’t know which.
June 30th, 2009 at 12:02 am
Who is to blame? I consider this the wrong question.
The blame game doesn’t really lead to any deep analysis. For instance, the Fed was mentioned here, or even one person, Alan Greenspan, as alleged root cause for the crisis of capital accumulation on a global scale, as if there hadn’t happened similar things again and again since the genesis of capitalism, long before the Fed was invented or Alan Greenspan had become Fed chairman and not just in US. Thus, this is equally a myth as “efficient markets”, the money-multiplier explanation and thing like that.
Not who. What is to blame.
Capitalism. The law of value.
Almost everything else can be derived from that. Well, ok, the bad weather can’t be, but the business cycle, the credit cycle, boom and bust, the over-accumulation of capital, the over-production of goods relative to demand, which is always limited, the increasing gap between the rich and poor ones, and the economic collapse when profit expectations of the capitalists can’t be satisfied as well as the ideologies and behavior of the character masks (like Greenspan) who function within the system.
However, it appears many people can’t explain the world w/o finding someone to blame, some guilty ones who are imagined to have caused the calamities of capitalism by individual wrongdoing, caused by their flawed character or world-view, in the worst case because they were evil-mined conspirators. Too bad.
rc
June 30th, 2009 at 12:19 am
Kinda funny that the guy above me is saying its systemic as was I, but I would argue the FED as the problem because they are more central planning – which is leading to problem, as does Fiat Currency, Fractional Reserve Lending, an annual 2% inflation target (teach people about compounding btw) and not “the law of value.” Many hate capitalism but the alternatives are worse. I kinda like it though, it generally rewards hard work, intelligence, drive and motivation (at least in my field). Kinda troublesome for those stuck in a cycle of poverty, but I am not sure if Capitalism prevents the rich from voluntarily helping the poor.
June 30th, 2009 at 6:11 am
I had to lookup to see if that was a real law …
“production would stop sooner or later” caught me .. wondering how the rescue of the indigent thru social programs and bankruptcy laws for corporations in American capitalism .. mess with this law
one of my earlier posts in this thread had me contemplating human child creation .. and how to a capitalist .. every living being to feed a something to .. is an opportunity for profit / balanced against / to the human production worker .. the more workers the less he/she is worth
the dilemma is more people = more production needs .. does not equal out tho with robotic labor productivity
from:
http://en.wikipedia.org/wiki/Law_of_value
Is it an equilibrium theory?
Under capitalist conditions, balancing output and market demand depended on capital accumulation occurring. If profits were not made, production would stop sooner or later. A capitalist economy was therefore in “equilibrium” so long as it could reproduce its social relations of production, permitting profit-making and capital accumulation to occur, but this was compatible with all sorts of market fluctuations and disequilibria. Only when shortages or oversupply began to threaten the existence of the relations of production themselves, and block the accumulation of capital in critical areas (for example, an economic depression, a political revolt against capitalist property or against mass unemployment), a genuine “disequilibrium” occurred; all the rest was just ordinary market fluctuations.
so .. danm says at 9:23 pm “I’m sorry but when the list is that long, it’s systemic” and no ones to blame
.. brings to mind song sung live by Paul Simon at the 2001 Grammys .. “when I see it from the other side its a completely different song and I’m the one who made you cry and I’m the one whos wrong”
June 30th, 2009 at 7:22 am
[...] « Who is to Blame, 1-25 Bailout Tracker: TARP, TIP, PPIP and TALF [...]
June 30th, 2009 at 8:33 am
so .. danm says at 9:23 pm “I’m sorry but when the list is that long, it’s systemic” and no ones to blame
.. brings to mind song sung live by Paul Simon at the 2001 Grammys .. “when I see it from the other side its a completely different song and I’m the one who made you cry and I’m the one whos wrong”
——————–
Our system is flawed. And it’s not only about capitalism.
When I started working in my early 20s I came into the workforce supercharged and full of energy and idealism. It did not take me long to see how INEFFICIENT our system really is. Energy is wasted everywhere. We talk about maximizing profits but let’s face it, efficicency is far from most people’s minds.
The economy is made of millions of separate equations in which people are trying to maximize a variable. But if we were able to merge all these equations into one, the optimal solution would probably be much different. Just the fact that this is happening guarantees that we will be getting shocks every once in a while.
Now let’s take a look at those who don’t respect the law. Not respecting the law does not make someone amoral. The law could be unfair and protecting a minority. If it weren’t for not respecting the law, the US would still be a Dominion of England.
So let’s look at the system…
Our legal system has evolved from the Magna Carta. And this Magna Carta was not about doing the right moral thing. It was about protecting property rights and social order. This Magna Carta protected the minority with the wealth.
In North America, a dream was sold: the American Dream. And the idea was that everyone has a chance at prosperity if they try hard enough. Bush’s ideology of home ownership is an example. The reality is that the system is rigged and the true American dream is impossible for most of the population. Yet each American is still being judged according to the realization of this dream and they keep on being bombarded with ads and tv shows showing them how incompetent they are.
When the system in place is in contradiction with the expectations, it’s a certainty that people will go out of their way to cheat. Just like the killer who rationalizes his crime in order to stay sane, all people rationalize their level of morality vs. their actions. An since respecting the law does not mean a higher level of morality, you’ve got an issue.
If you look at it bottom-up, it is tempting to say that each person had a choice to do the right thing but when you look at it top-down, considering human nature, the writing was on the wall. It was clear that the system was breaking down and this started a few decades ago.
June 30th, 2009 at 8:59 am
[...] Ritholtz’ list on People to Blame from his book. Ritholtz is a traditionally bearish investor: Who is to Blame, 1-25 | The Big Picture [...]
June 30th, 2009 at 9:29 am
Regular readers may be interested in the analysis that Steve Sailer has done. His contention is that the (bipartisan) politics of promoting minority homeownership–without regard to risk–was a major contributor to the residential real estate bubble. In turn, this was one major component of the financial crisis that came to a head in 2008.
Sailer has not simply offered speculation on this point. He has collated data on loan origination and delinquency, and presented graphical and statistical analysis in support of his thesis.
Sailer also coined the phrase “predatory securitization.” More so than “predatory lending,” this aptly describes a practice that many of the villians on Ritholtz’s list engaged in during the “Happy Time.”
Here is a link to a chronology of Sailer’s posts on the topic.
~~~
BR: I’ve reviewed Sailer’s recent commentary on the matter, including the post you referenced. They remain blissfully data free as tot he questions I keep asking, to wit:.
As I have asked REPEATEDLY since this discussion began, show me some hard data on CRA loans. Then show me the foreclosure rates relative to the national averages, with disproportionate problems coming from CRA related bank lending. Show me the regions that CRA mortgages have caused massive foreclosures and dislocations. Please show me the CRA CAUSED DEFAULTS as a major source of disclocation!
This is the problem with people who are “into” politics — they seem to mistake debate and chatter for actual events, and banking actions.
June 30th, 2009 at 10:05 am
BR –
(1) Is data on CRA loans in the public domain? To address your narrow question, it would have to be in a relatively granular form that is amenable to analysis. To address Sailer’s contentions, it would also have to be disaggregatable by race. (It would be reasonable to expect CRA regulators and banks affected by the CRA to compile data in this form, given that the purpose of the CRA was to combat racial discrimination in lending practices.)
(2) To my knowledge, the broad answer to (1) is “No.” A lead to link that rebuts this impression would be a step forward in the debate, I think.
(3) Meanwhile, Sailer and his social-scientist reader “Tino” have found data that was collected for other purposes and analyzed it to address their broader questions. You don’t think it directly answers your CRA-focused inquiry–fair enough. But the issue then becomes, Why haven’t regulators and lenders put their information in the public domain in a format that allows direct comparisons such as those you solicit? (e.g. CRA forclosure rates relative to the national averages).
(4) To be clear, I think the question as you pose it–whether a 1977 piece of legislation “is significantly to blame for the credit crisis” that transpired 30 years later–has to be answered in the negative. But the CRA didn’t exist in a political and financial vacuum, any more than did Fannie Mae or AIG.
June 30th, 2009 at 10:58 am
What happened to international demand for junk paper…. all the bozo’s devaluing their currency to buy treasuries and make everyone search for Yield…..
I suspect there may be a crisis there somewhere….
but more on their end …… since equilibrium must be maintained
June 30th, 2009 at 11:09 am
Re: (2) above –
In the Comments to BR’s prior post, Ryan Chittum linked to this 1/7/09 21-page PDF, which contains charts of data segregated by CRA/non-CRA lender, and by metropolitan area. That Traiger & Hinckley report includes a link to their 1/26/09 18-page PDF, The CRA of 1977: Not Guilty, which includes charts of additional sourced data.
June 30th, 2009 at 12:51 pm
According to Wikipedia, the Gramm-Leach-Bliley act which repealed parts of Glass Steagall, passed the Senate 90-8 and the House 362-57. It is hard for me to see why one of the three sponsors should be at number 3 on the list, 16 spots ahead of the President who signed it; a President who also allowed his Treasury Secretary to kill any chance of regulating the OTC CDO market.
Personally, I blame Congress far more and the Fed far less than BR does; the Fed was after all responding to a dual mandate imposed on it by Congress, and dealing with massive and ongoing deficit spending by that Congress. The root of all of our problems is the out-of-control spending beyond our means of the last 50 years.
June 30th, 2009 at 4:52 pm
Here’s a list I’ve been building for about a year now. Not sure if all will show up or not, but here goes:
My summary of Housing Bubble Causes
Includes my rough swag of impact in causing the bubble. 1=low, 10=high.
Many of these overlap of course.
Indirect / General Causes
————————–
Note that indirect causes may have large impact, but are more difficult to qualify/quantify. Indirect causes include:
A. General expectations of government risk management / bailouts
– Programs such as FDIC, FHA, etc.
– Bailout precedents – Chrysler, Penn Central, S&L / LTCM, NYC, etc.
B. Increased complexity of investments
– How many people actually know what specific entities the bulk of their retirement savings are going to?
C. Increased culture of greed – “keeping up with the Joneses”
– Facilitated by mass media growth, primarily in the 20th century
– Manifest in the large amount of fraud during the bubble (liar loans, ponzi schemes, etc)
Specific and Recent Federal Activities (chronological order)
————————————————————–
1. 1977 – Community Reinvestment Act (CRA) (impact = 2)
Very controversial as to whether this was a cause – reason given that CRA loans haven’t defaulted more than non-CRA loans. I don’t think it’s that simple though – CRA seems to have just set the table for risky loans. Despite some statements to the contrary – there were some fines and levies due to CRA.
2. 1986 – Removal of Credit Card Debt Deduction (impact = 1)
Via Tax Reform Act of 1986. This encouraged the movement of debt from credit cards towards home equity. Theory but no hard evidence.
3. 1990’s – Barney Frank’s relationship with Fannie Mae (impact = 4)
Partner Herb Moses hired by Fannie Mae 1991-1998. Frank pushed Fannie to loosen regulations on lending for 2-3 family homes. Frank resisted attempts at greater oversight of Fannie Mae and Freddie Mac, e.g. insisting in 2003 that the institutions were financially sound.
4. 1992 – Federal Housing Enterprises Financial Safety and Soundness Act (impact = 2)
Mandated that HUD set specific goals for Fannie and Freddie for subprime lending. Evidenced by Boston Federal Reserve push for looser lending standards – don’t consider lack of credit history as a negative factor, consider welfare and unemployment benefits as sources of income, etc.
5. 1993 – Clinton’s CRA Reform (impact = 6)
Established Community Development Banks. Pushed for more subprime lending, which increased by 39% from 1993-1998 while other lending increased 19%.
6. 1997 – Taxpayer Relief Act (impact = 3)
Created the $250k / $500k capital gains exemption for home equity.
7. 1990’s/2000’s – SEC forces banks to decrease their loan loss reserves (impact = 2)
E.g. in 1998 and again in 2004 the SEC forced SunTrust to lower its reserves during acquisitions.
8. 1999 – Gramm-Leach-Bliley Financial Services Modernization Act (impact =
Repealed portion of Glass-Steagal, allowing commercial banks to offer investment services, and vice versa. Allowed for weaker supervision of big financial firms (e.g. AIG) under the Office of Thrift Supervision.
9. 1999 – Fannie Mae loosens lending further (impact = 4)
Pushed by Clinton Administration. $2 Billion of CRA loans purchased by Fannie in 2000.
10. 2000 – Commodity Futures Modernization Act (impact = 5)
Deregulated Credit Default Swaps (CDS), encouraging increased leverage on MBS.
11. 2001-2005 – Federal Reserve policy mistakes (impact = 10)
As an overreaction to the relatively weak 2001 recession the Federal Funds target rate was set far too low for far too long between 2001-2004 – in gross violation of the Taylor Rule. Additionally the Fed injected $110 Billion into the economy. Certainly this was the zenith of the housing bubble slingshot’s power. The bubble was written in stone by this action, primarily promoted by Alan Greenspan but also by other Federal Reserve members, including Ben Bernanke.
12. 2002-2004 – Bush’s Ownership Society Initiatives (impact = 5)
Primary among these is the American Dream Downpayment Initiative – paid up to $10k or 6% of purchase price; again targeting “affordable” (risky) housing. Funded up to $200 million annually from 2004-2007. Additionally included other tax cuts and stimuli. Included a large post-9/11 media “feel good” push.
13. 2004 – Alan Greenspan’s ARM push (impact = 4)
Actually pushed ARMs as a way to affordability. Off the cliff we go.
14. 2004 – SEC removal of investment bank margin restrictions (impact = 4)
Pushed by the five big investment banks, this was yet more acceleration off the cliff.
Other Recent and/or General Direct Causes
———————————————
15. Mortgage interest tax deduction (impact =
Generally amounts to a subsidy of the real estate industry. Previously all interest was tax deductible; each was removed until only mortgage interest was left.
16. Politicians being paid to deregulate (impact =
Politicians have taken billions of $$ each year in campaign contributions from the banks, in exchange for deregulation and/or favorable regulation
17. Rapid growth of credit derivatives, CDS (impact = 4)
CDS’s invented by JP Morgan in 1997; exploded during the bubble, providing a medium for the massive risk.
18. Ratings Agency corruption / conflict of interest (impact = 4)
A lot’s been written about this. I don’t blame the agencies for mis-using formulas – no formula can account for such a black swan; I do however blame them for lack of a “big picture” view, and allowing themselves to be influenced by the entities they rated.
19. Hiding of loans in QSPE’s (impact = 2)
Lots of loans were hidden off the banks’ balance sheets (i.e. not subject to reserve requirements) by putting them in QSPE’s, e.g. estimated $800B for Citibank.
20. TV shows that encouraged speculating, flipping, etc. (impact =
Extreme Makeover, Flip This House, etc. About 20 such shows existed in 2005.
June 30th, 2009 at 4:53 pm
Hey – it showed up! ha ha – I see all the Impact = 8 got converted to shades smileys
June 30th, 2009 at 4:55 pm
«His contention is that the (bipartisan) politics of promoting minority homeownership–without regard to risk–was a major contributor to the residential real estate bubble. In turn, this was one major component of the financial crisis that came to a head in 2008.»
That argument is entirely laughable — there are serious estimate of 3-4 trillions of losses in the USA in mortgage related finance, and soeboy argues that the small number of minority people who even own houses are responsible for a major part of that?
The Census web site has stats on how many minority people have mortgages and the average size of a mortgage; from memory it is a few million people and the average balance outstanding is something like 50k. And pretty few are defaulting.
But then how do most Real Americans imagine minority neighboruhoods to loook like? Well, unless Republicans are huge liars, mnority neiboughoods look like this:
* Rows of new huge mansions bought with no-repay CRA loans from Fannie Mae.
* The welfare queens getting off shiny new Cadillacs in each driveway.
* Sizzling smoke from the BBQ where strapping young bucks are grilling the t-bone steaks from foodstamps.
* The kids will leave after the party to start their degree course in ebonics with all-expenses paid guaranteed places at an Ivy league uni, thanks to affirmative action.
All this why poor white working middle families who have difficulty to make ends meet on $250k/y beause of the violent extortion of all the money neded to fund the lavish lifestyle of the priviledged minorities.
June 30th, 2009 at 6:10 pm
Blissex wrote (4:55 pm) –
Who would defend the strawman arguments you’re ridiculing? You don’t appear to have read the linked articles prior to commenting.
June 30th, 2009 at 6:16 pm
Barry Ritholtz responds to Steve Sailer at his blog –
Farther down, Sailer ripostes –
July 1st, 2009 at 1:24 am
«mortgage lenders, such as Countrywide, were told in no uncertain terms by the Clinton Administration that either they could start behaving like they were covered by the CRA or the CRA would be extended to them..»
Bush never made this threat. Please poduce the statistics that show when he won the presidency Countrywide stopped making CRA-style loans, and that the loans that they were forced to make by Clintnn during his presidency are a large part of the finance meltdown.
July 1st, 2009 at 8:17 am
Please show where one of the parties involved in this discussion has made an assertion that gives your request relevance. If you can’t or won’t… why make it?
Sailer’s view of Countrywide is laid out in this article (also accessible via previously-linked articles).
July 3rd, 2009 at 10:16 am
Further, updated discussion of this topic at Sailer’s blog.
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