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 . . .

Category: Bailouts, Credit, Data Analysis, Politics, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

177 Responses to “Who is to Blame, 1-25”

  1. franklin411 says:

    #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.

  2. The Curmudgeon says:

    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.

  3. The Curmudgeon says:

    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.

  4. alfred e says:

    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.

  5. DMR says:

    @Curmudgeon,

    lol. Good one. “Monkey money” is even better than “monetary mischief.”

  6. Concerned American says:

    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.

  7. 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

  8. 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.

  9. Bruce N Tennessee says:

    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…

  10. call me ahab says:

    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”

  11. DMR says:

    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

  12. hopeImwrong says:

    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.

  13. carlwied says:

    I agree with F411. Whether you’re buying an MBS, buying a house, or voting… The “caveat emptor” principle applies.

  14. harold hecuba says:

    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

  15. tagyoureit says:

    LOL, the thieves and liars list.

    [queue Ministry "Thieves"]

  16. Onlooker from Troy says:

    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.

  17. Super-Anon says:

    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?

  18. Steve Barry says:

    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.

  19. danm says:

    china shoulders some blame with not allowing a free floating currency
    ——————–
    Assuming it cared about the well-being of Americans.

  20. rickety rick says:

    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.

  21. Greg0658 says:

    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?

  22. franklin411 says:

    @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.

  23. danm says:

    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!

  24. danm says:

    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.

  25. Greg0658 says:

    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

  26. Steve Barry says:

    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.

  27. RW says:

    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.

  28. super_trooper says:

    @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.

  29. super_trooper says:

    @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?

  30. wngoju says:

    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.

  31. DMR says:

    @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?

  32. alfred e says:

    @trooper: correct. How should citizen’s accept the blame for CFMA?

  33. KidDynamite says:

    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)

  34. super_trooper says:

    @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.

  35. Thor says:

    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.

  36. danm says:

    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.

  37. [...] 29, 2009 Barry Ritholtz excerpts a list from his new book, Bailout Nation, listing those most directly responsible for the financial [...]

  38. cvienne says:

    @ 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…

  39. govy says:

    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!

  40. Marcus Aurelius says:

    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).

  41. Onlooker from Troy says:

    govy

    See 4-6. They are indeed amongst Barry’s primary targets.

  42. VennData says:

    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.

  43. super_trooper says:

    @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.

  44. cvienne says:

    @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…

  45. kstills says:

    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.

  46. cvienne says:

    @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…

  47. kstills says:

    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.

  48. harold hecuba says:

    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.

  49. super_trooper says:

    @kstills, to much cussin? Don’t use words such as fcuking, vaiagra, sozialism etc

  50. Marcus Aurelius says:

    trooper:

    Okay. Suburban fuckwits.

  51. Boots or Hearts says:

    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

  52. advsys says:

    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.

  53. cvienne says:

    @Marcus Aurelius

    LOL :-)

    I’m MUCH MUCH more comfortable with that…

  54. kstills says:

    Not me.

    Although I do hold some views that the author disagrees with. ;)

    ~~~

    BR: A goodly percentage of people disagree with me.

  55. cvienne says:

    @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…

  56. frizzione says:

    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.

  57. cvienne says:

    @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”…

  58. cvienne says:

    @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…

  59. Greg0658 says:

    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?

  60. ben22 says:

    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.

  61. DuchessGateau says:

    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.

  62. ben22 says:

    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.

  63. Greg0658 says:

    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

  64. frizzione says:

    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

  65. ben22 says:

    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?

  66. ben22 says:

    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.

  67. cvienne says:

    @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…

  68. karen says:

    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

  69. frizzione says:

    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.

  70. ben22 says:

    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.

  71. cvienne says:

    @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…

  72. ben22 says:

    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.

  73. DuchessGateau says:

    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.

  74. karen says:

    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…

  75. Theodore D. says:

    Systemic/cultural failure.

  76. super_trooper says:

    @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).

  77. hopeImwrong says:

    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.

  78. Thor says:

    Ben22 – Is that seriously from 1926? If so that’s classic!

  79. ben22 says:

    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.

  80. Onlooker from Troy says:

    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. :-)

  81. super_trooper says:

    @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.

  82. Onlooker from Troy says:

    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!”

  83. ben22 says:

    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.

  84. call me ahab says:

    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

  85. ben22 says:

    meant to say that wasn’t intended to be taken that way.

  86. Thor says:

    Ben22 – no kidding, and here I was thinking the whole idea of market manipulation was fairly new! Thanks for the post!

  87. Onlooker from Troy says:

    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.

  88. Onlooker from Troy says:

    Indeed there’s really nothing truly new under the sun. It’s always intriguing to read historical parallels to present situations. Hoocoodanode?

  89. frizzione says:

    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.

  90. frizzione says:

    oh, my, it did it for me! :-)

  91. ben22 says:

    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.

  92. karen says:

    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.

  93. Onlooker from Troy says:

    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!

  94. Onlooker from Troy says:

    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.

  95. cvienne says:

    @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

  96. call me ahab says:

    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

  97. frizzione says:

    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?

  98. frizzione says:

    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 :-)

  99. ben22 says:

    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.

  100. cvienne says:

    @ben22

    Ben I’m appalled!…You’re in the DEFLATION camp…Your 2 cents should be your 1 cent!