Too Ugly To Watch

Michelle Malkin has a round-up on the Citicorp bailout. She's been consistent in saying the bailouts won't work. I agree and disagree with Michelle. Let me explain.

Simply put - America, the world in fact, is in trouble because of bad credit and bad risk-taking. Jumping up above the dirty details and blame, let's assume there are basically two ways out of this mess.

We can let failed credit, failed businesses and failure all around fall - or we can prop it up. The government is opting to prop it up with "good credit." But the truth of that good credit is that it is the ability for working men and women to "pay it back" for generations to come.

The rosy scenario from pro-bailout folks is that businesses will revive and ultimately remove future taxpayers from that scheme. Unfortunately, I'm unconvinced that will happen, whether the economy revives quickly, or not.

Both Bush and Obama are determined to not let Americans feel any more pain than is absolutely necessary. But in relieving that "pain," you are also tinkering with fundamental free market forces.

Risk is made to not be risk, failure is no longer failure. And a lack of responsibility amid the private and business sectors, right down to the individual level, is going to be rewarded. Without those fundamental influences at work, you have no free market at all.

The government is encroaching into the private sector to the extent that it's now bordering on a nationalization strategy. Do you really believe that with Democrats running things they will give up that encroachment and the subsequent control that it brings?

I don't.

They are already intent on involving themselves even more deeply into the health care realm. That constitutes one-seventh of America's economy. It was only a year or so ago that Nancy Pelosi actually mouthed words to the effect that perhaps the oil companies should be nationalized.

I wouldn't expect such things to happen over night. This is not a "the sky is falling" post, though perhaps it should be. We're talking trends here, not an outright coup against the private sector. And the trend I see emerging is the steep part of a very slippery slope to the Europeanization of the American economy.

We are telling people that can't afford the home or car they bought that they should have a right to keep it. We are telling failed businesses that it's okay to stay in business so long as you cede some control to the government.

Ultimately the people who get the bill for all this will not be the irresponsible actors and failures. It will be the vast majority of current and future Americans who pay their bills on time and play by "the rules."

If such things have no meaning in America due to the current and pending bailouts, how is it we can hope to have a new generation of Americans who see prudent risk-taking and playing by the rules to be noble goals? How is it we can tell people that you might have to wait and work a little harder to get just what you want, as opposed to assuming it is somehow your birthright?

My biggest fear isn't that these bailouts won't work. They'll be marginal, at best, and the economy is going to be in the dumper for some number of years no matter what we do. That in contrast to a shorter, harsher but necessary bit of pain. It's a pain that, by free market standards, America has to feel as payment for a spending/credit spree that was out of control.

My bigger fear is that the bailouts will "work" in preventing a total meltdown by ensuring that future generations of Americans will come to know the grinding pain of a system that will give us permanent and almost total government control and responsibility for nearly everything in America.

Certainly "calmer heads" might disagree. But tell me this - under current Republican and Democrat policies, point out one area in which, given a choice, government opted to not grow?

That is explicitly not what the Founders of this great nation had in mind over two-hundred years ago. They knew, as any honest student of American History must confess, that the government that does more has only rarely, if ever, done best.

But, hey, we had a good run. I guess you can say that much is true.

Comments

[SacTownMan]

Hundreds of billions for Citibank and other wall street icons and nothing for the small business owner. Why? Because in the real world a failed business model equals a failed business.

The dumb ass that opens a computer store next door to Best Buy or the 10th Mexican resturant in a 4 block radius is doomed to fail.

In the real world this folks just go under and life goes on, not so for wall street!

There is no accountibility when the government will just step in and bail out the folks that caused this mess in the first place!

Let em fail and ride this out, the real world is much more efficient at dealing with incompetence than the government!

[jharp]

14 years of a Republican Congress and 8 years of George Bush has it's consequences.

It makes me sick to my stomach what they have done and not just the damage to our economy.

Good friggin riddance, GOP.

[Lala]

Funny that Clinton claims he is responsible for deregulation -

from instapundit.com

OBAMA’S CLINTON PROBLEM: Deregulation made the prosperity of the 1990s possible. Just ask Bill Clinton.

Late in Clinton’s tenure, the White House put forth a document celebrating “Historic Economic Growth” during the administration and pointing to the policy accomplishments it deemed responsible for this growth. Among the achievements on Clinton’s list were “Modernizing for the New Economy through Technology and Consensus Deregulation.” That’s right, a Clinton White House document credited part of the administration’s success to that now dreaded d-word, deregulation.

“In 1993,” the document explained, “the laws that governed America’s financial service sector were antiquated and anti-competitive. The Clinton-Gore Administration fought to modernize those laws to increase competition in traditional banking, insurance, and securities industries to give consumers and small businesses more choices and lower costs.”

Everything in those passages is true. All that’s missing is credit to the GOP-controlled Congress elected in 1994 for passing most of the policies that led to the prosperity. But the Clinton administration, whatever its personal and policy flaws, should indeed be praised for signing and advocating this deregulation. These bipartisan financial policies, however, were the very same policies that Obama, running mate Sen. Joe Biden (D-Del.) and other Democrats attacked during the campaign.

Oh, well, campaign’s over.

Posted at 8:13 am by Glenn Reynolds

[IslamoLlama]

"--
14 years of a Republican Congress and 8 years of George Bush has it's consequences.
It makes me sick to my stomach what they have done and not just the damage to our economy.
Good friggin riddance, GOP.
--"

That is awfully naive. GOoPers love to bring up this point like it somehow absolves them of responsibility, but Clinton signed the Graham bill that repealed Glassey-Seagel. And not because he choose to, but because the bill had a veto-proof (translation: Democrat enabled) majority in passing.

This isn't a matter of Democrats-this and Republicans-that. There are core and fundamental economics principles that have been abused or ignored over the last 30 years. Credit has been lent to people who should not have been allowed access to it, at rates that would make a loan-shark blush. Rapid consolidation of corporate business has given birth to industries that are "too big to fail". Dan will fret about government regulations and state owned business monopolies, but are we really in a better position than Cuba or Venezuela with privately owned corporations degenerating and collapsing just as badly as their state-run initiatives?

This is, ultimately, not an issue of policy nearly as much as it is one of political philosophy. Democrats and Republicans alike have failed to regulate business practices that desperately need regulation (see: derivatives, HELOC loans, commodities futures) and meddled in practices that should have been left to the states or the people to sort out (see: California emissions standards and revised bankruptcy laws). They've taken this abysmal policy approach because of a political philosophy they've adopted that has convinced them the short term economic gains they saw in a $45 trillion unregulated derivatives market, a flood of SUV sales, and increased access to consumer credit would outweigh the long term pain of the current recession mess. They were shortsighted, dull witted, and greedy. And now they're trying to fix our economic mess the only way they know how - by throwing billions of dollars at the rich folks who (five years ago) convinced them they had all the answers.

This isn't a partisan problem. Carl Levin and his opposition to raised CAFE standards isn't less guilty than John Cornyn and his defense of banking deregulation. The "business friendly" model of government hasn't actually done business any favors in the long term. Now we get to throw good money after bad - $7.4 trillion dollars of good money, if the Fed gets its way - because no one wanted to do the slightly more difficult thing back in 1999 or 2002 (keep a little money back so you aren't overleveraged, do a background check on the guy you're selling a mortgage to, keep insurance companies and investment firms separate so no one gets "too big to fail").

America got sold on conservative economics - tax cuts and self-regulation and privatization - and those principles are failing. We need new principles, preferably ones that work.

[jharp]

14 years of a Republican Congress and 8 years of George Bush has it's consequences.
It makes me sick to my stomach what they have done and not just the damage to our economy.
Good friggin riddance, GOP.
--"

That is awfully naive.

Not really. Though I agree the democrats share a portion of the blame.

100's of billions thrown away on the War on Drugs, $1,000,000,000,000 pissed away in Iraq, $5 trillion in deficits, most expensive health care system in the world by double (due to GOP blocking any reforms). All have contributed to our precarious position and all have GOP written all over them.

And yeah, Clinton signed into law the repeal of Glassey-Seagel and it was a bad move. Yet look at the circumstances when he did it. And it was the GOP that pushed and sold the repeal.

[IslamoLlama]

"-- The dumb ass that opens a computer store next door to Best Buy or the 10th Mexican resturant in a 4 block radius is doomed to fail.

...

Let em fail and ride this out, the real world is much more efficient at dealing with incompetence than the government! --"

But you've just illustrated the problem right there. When Best Buy opens up shop in your town, the only people who can compete are Walmart or Circuit City (and that last one isn't so much an option anymore). The small business doesn't exist.

So if Best Buy goes belly up in the middle of a credit freeze and you don't have a Walmart or a Circuit City around, suddenly you don't have anyone in town selling computers. Some might suggest that it would be an excellent time to open up a small computer business, and this might be true except for two things. 1) With what business capital? No one is willing to sink money into you. And 2) the moment the economy perks up again, Best Buy reopens and runs you out of business.

What then? It's much harder (possibly impossible) to run other small businesses if no one can get a computer. So other businesses start tanking. And the whole city goes into a collapse.

The real world is much more unforgiving when dealing with incompetence. But the real world also loves spreading the pain. One might suggest that it was a bad idea to let Citigroup get that big to begin with. One might advise that - in the future - we send out government to keep businesses small, or at least smaller, so that one company doesn't become the backbone of the entire economy. One might then propose that MORE government regulation is the answer to fewer government rescues.

Of course, one would be laughed out of this internet form because that's socialism or something and free market blah blah blah and everything will sort itself out if only people would just let the system come crashing down around your ears.

:-p I feel like I'm watching someone build a house, making modification after modification, adding room after room, until the foundation is cracking, the walls are strained, the sewage is bubbling up from the bathrooms and the toilets, and the shingles are sliding off the roof. And I feel like I'm hearing that person say, "Oh boy, I hope the building inspector doesn't come by and try to change anything. He'll just ruin it."

[IslamoLlama]

"-- 100's of billions thrown away on the War on Drugs, $1,000,000,000,000 pissed away in Iraq, $5 trillion in deficits, most expensive health care system in the world by double (due to GOP blocking any reforms). All have contributed to our precarious position and all have GOP written all over them. --"

You confuse "GOP" with "conservative". Plenty of conservative Democrats supported - in some cases proposed - these measures. It's a philosophy that is poisoned. And, to be fair, the War on Drugs and the War on Terror don't have all that much to do with the economy. Health care is an aspect if only because it is a heavy weight on businesses (but one that they embraced over government mandated plans). The deficit has probably done more to spur our economy than hinder it. Wall Street loves government spending. That's not really the problem.

The problem is in the practices of the businesses themselves. No one twisted Citigroup's arm and made them give out millions of bad loans on rapidly depreciating properties. No one is denying them the freedom to make new loans to sound institutions and borrowers in a way that would unfreeze the credit market. Citigroup simply has no confidence in its own lending practices, and its killing the company. But it is a situation Citigroup aggressively lobbied for under the assumption that if it could hyper-leverage its assets without being told by some government bureaucrat that the mortgage backed securities it was investing in en masse were too risky, it could turn a bigger profit.

Citigroup set the table for its own demise in the same way that the auto industry knee capped itself by aggressively lobbying against emissions standards and mileage requirements.

"-- And yeah, Clinton signed into law the repeal of Glassey-Seagel and it was a bad move. Yet look at the circumstances when he did it. And it was the GOP that pushed and sold the repeal. --"

And the Democrats bought it - hook, line, and sinker. Same with Iraq. Same with the War on Drugs. There was no serious push back. Democrats ducked their heads and acquiesced because they were afraid of looking weak (IRONIC!).

[templar knight]

Sorry to break the bad news to some of you, but the Democrats and their allies were right in the middle of all the free-wheeling fun in the capital and real estate markets. Both parties are at fault, and if you want to try to blame one party for this mess, then you will never get to the bottom of the problem.

And frankly, I don't even know where to start, myself. But the first thing to do, in my opinion, is to stop these bailouts. The investigators, and the Congress needs to appoint some who are non-partisan, need to look at the markets and see exactly what the problem is. I don't know whether it is derivatives, or bad credit decisions, or a combination of both, or speculation on both, or what exactly has caused this meltdown. But we all deserve some real answers, not would up in politics, but real answers as to what caused this mess, and how to prevent such a thing from ever happening again.

[Andrew Garland]

It is sad and amazing that most people see the actions of government as being the result of one person, the President. The financial crisis convinced most swing voters that the economy had to be given to the Democrats as the more trustworthy party. It is a great irony that the wrong party is blamed.

It usually takes government power, arrogance, and stupidity to create a crisis.
Our current financial problems were created by government pressuring the loan market to make bad loans, and empowering Fannie Mae and Freddie Mac to buy up those loans so that the process could continue. This was promoted by Democrats and tolerated by Republicans, so there is blame all around, but not for all Democrats or Republicans.

The Democrats said "we are arranging loans to good people who will pay back the money". The Republicans wouldn't say loudly "we don't want to make those loans, they are too risky", although they said it softly in committee.

The government ran an off-budget loan-department (Fannie and Freddie) that borrowed $5.4 trillion ($5,400 billion), as much as the total debt of the US before that. Fannie and Freddie were regulated and directed by the House Financial Affairs committee, chaired by Barney Frank (D. MA) and controlled by the Democratic majority for the last two years. The bad loans were made mostly in the last two years, under their direction and encouragement.

I predict more irony. For eight years the cry has been "It is the fault of the devil President Bush". In the next four years, despite a Democratic President Obama, and regardless of any continuing economic problems, the cry will be "It is the fault of the prior devil President Bush".

See my post "We Guarantee It" for my review of the news and events leading to our crisis.
http://easyopinions.blogspot.com/2008/10/we-guarantee-it.html

[Lala]

Here is a partial bit of an article on the repeal of Glass-Steagall -

"Now, on the one side they could sell mortgages to homeowners, and then invent fancy investment structures which they sold on Wall Street. Because they were "covered" on both ends, banks felt free to sell increasingly dicey mortgages, just so long as another sucker was picking up the garbage. This sucker was picking it up because he had a plan to repackage it and sell it to another sucker, and so on. Eventually we end up with no-doc stated income interest-only option-ARM no money down mortgages being repackaged as "sound investments" being sold as "stable assets" for city pension plans to park their money in. (See "Subprime Meltdown As Told By Stick Figures").

We can only imagine the level of machination exerted over those 30 years, but we do know this. Robert Rubin was Secretary of Treasury, which had oversight over Glass-Steagall regulation. Days before he resigned, Glass-Steagall was repealed. Just over a year later, he became chairman of the Citi executive committee, with an annual compensation of $40 million, a position he still holds, despite Citigroup's $24 billion in subprime-related losses."

http://consumerist.com/381032/blame-the-subprime-meltdown-on-the-repeal-of-glass+steagall

[Lala]

Meanwhile, there is scandal after scandal with Charlie Rangel, Chairman of the House Ways and Means Committee.

[Andrew Garland]

Lala quoted from The Consumerist,

-----
"Now, on the one side they could sell mortgages to homeowners, and then invent fancy investment structures which they sold on Wall Street. Because they were "covered" on both ends, banks felt free to sell increasingly dicey mortgages, just so long as another sucker was picking up the garbage."
-----

The repeal of Glass-Steagal allowed banks and brokerages to be owned by the same institution. The FDIC insurance on bank accounts was not repealed, and many regulations of bank and brokerage activity were not repealed. This has nothing to do with the housing finance crisis.

Note that loan originators buy mortgages from homeowners. They give the homeowner cash (which pays for the house) in exchange for a promise that the homeowner will repay cash + interest.

Then, they may hold the mortgage if they are a bank with cash they want to lend, or they can try to sell the mortgage to another institution, if they are primarily in the business of arranging loans.

Fannie Mae and Fredie Mac were/are Government Sponsored Enterprises (GSE's) which the government set up to purchase mortgages. The standards they set for purchasing ("conforming loans") became the standard for loan terms offered to home buyers.

It was Fannie and Freddie that used "fancy investment structures". They put thousands of similar individual loans together into "mortgage pools" and sold "Mortgage Backed Securities" (MBS bonds) which paid out from the mortgage payments coming in. Fannie and Freddie got back investment cash from selling the MBS's to insurance companies, other banks, and foreign governments. You can look at Fannie and Freddie as a middleman who connected cash from large institutional investors into loans to home buyers.

The government pressured banks to make loans to "deserving groups", loans that were risky and that the banks did not want to hold. The banks asked congress to have Fannie and Freddie (FanFred) relax their standards and to purchase these risky loans. Congress agreed enthusiastically, and pressured Fannie and Freddie to buy loans under increasingly risky conditions. FanFred bought these risky but not-yet-bad loans and packaged them into "sub-prime" MBS bonds, which they guaranteed to their purchasers. FanFred took on increasing risk as the amount of guaranteed loans grew to $5.4 trillion, of which $1.4 trillion were sub-prime (unusually risky).

The government was trading in these bonds, so others did also. The government was guaranteeing payment, so how bad could the loans be? Eventually, large brokerages packaged loans in other more complicated ways. These CDO bonds ("Collateralized Debt Obligations") were rated AAA (very safe) by government designated ratings agencies, who we now know did almost no analysis, because the government wanted to create the widest market for these bonds, to create the greatest lending to home buyers.

The economy crashed when the true value of the underlying loans was discovered, and the fun ride stopped. The government was running that fun ride. None of this could have happened without government guarantee, interference, pressure, and official ratings, that convinced the big financial institutions that there was money to be made.

See "We Guarantee It" for a review of public sources and information explaining and supporting this analysis.
http://easyopinions.blogspot.com/2008/10/we-guarantee-it.html

[Lala]

I'm reading stuff like banks collapsing and our money, though being FDIC insured, will not be available to us. Maybe we need to march on Washington.

A near-riot and parliament besieged: Iceland boiling mad at credit crunch

Published Date: 24 November 2008
By Omar Valdimarsson
in REYKJAVIK
THOUSANDS of Icelanders have demonstrated in Reykjavik to demand the resignation of Prime Minister Geir Haarde and Central Bank governor David Oddsson, for failing to stop the country's financial meltdown.
It was the latest in a series of protests in the capital since October's banking collapse crippled the island's economy. At least five people were injured and Hordur Torfason, a well-known singer in Iceland and the main organiser of the protests, sa

id the protests would continue until the government stepped down.

As crowds gathered in the drizzle before the Althing, the Icelandic parliament, on Saturday, Mr Torfason said: "They don't have our trust and they are no longer legitimate."

The value of the Icelandic krona has been cut in half since January.

more at the link

http://news.scotsman.com/world/A-nearriot-and--parliament.4722970.jp

[scarshapedstar]

"Certainly "calmer heads" might disagree. But tell me this - under current Republican and Democrat policies, point out one area in which, given a choice, government opted to not grow?"

I think you meant "Democratic". Thanks!

[mark l.]

the fed funds rate is at 1.25%...it's not like the money isn't available to lend. The problem is that the finacial institutions don't have any capital left to function under the practice of keeping 10% on hand of what they lend.
It's a nice long view that these institutions need to be stabilized as they are the vehicles of lending, but the method of presenting this as a crisis to the public, to justify the amount that would be have to pay off 'gambling' debts is an abject disaster. If the crisis isn't sold as the 'end of all', no one backs the bailout.

The problem is that in emphasizing the need for swift(very expensive) action, a mild recession has been turned into the next depression. Bush has consistently soft-peddled ANY bad news, but now he is ranting on the street corner about economic apocalypse? Our economy is 70% service, and we have had every member of congress and the media tell us to be prepared for misery...who isn't going to reduce services?

The bailout is essential to restoring the financial system. The banks cannot and should not lend without working capital. The insult is that the american people had to be dispirited enough to accept lending money to institutions that have already lost it all. on that, mission accomplished.
(had I envisioned a scenario where the govt actually tried to create a recession via fear mongering, I would not have had the guts to imagine this. 4q08 will be -5%, half of which is a direct product of govt induced panic)

Bright spots?
obama has a team of economic moderates that probably could have served bush just as well, if not better. even mccain wouldn't have gotten this much supply siders running the show.

summers?
"Summers was on the staff of the Council of Economic Advisers under President Reagan from 1982-1983."
(wiki)

geitner is coming in to replace paulson in name only, and to keep the spigot open.

most intriguing?
christina romer-
"In a recent paper entitled, The Macroeconomic Effects of Tax Change, both Professor Romers arrived at some interesting conclusions that should prove relevant to future Obama tax policy. They concluded that tax increases have a large and detrimental effect on economic growth. However, if the tax increase is imposed to reduce a budget deficit, the detrimental effect is much less. The reasons given are that a decrease in the budget deficit would tend to have expansionary effects " through expectations and long-term interest rates, or through confidence."

http://www.associatedcontent.com/article/1240985/christina_romer_to_chair_obamas_council.html?cat=9

heritage discusses her work...
http://www.heritage.org/Research/Economy/wm1826.cfm

So obama's economic advisers are a reagan adviser and a supply sider?
The only reason he is holding off on announcing the suspension of any change for the next 2 years to the capital gains rate is so that he can take the credit when the market comes back 1000 pts, quickly. Why help bush with his own good news?

[mark l.]

another bright spot?
clinton to sec of state.

it's not like rendition wasn't made into an art form under the clintons. no american hands got dirty-we just tell the egyptians who was on our wish list of interrogations and we had quality torturing by proxy. gitmo? I have no doubt that clinton gets the detainees 'accepted' by their host country, if only to face execution or more serious torture. she'll get it done in six months or less, consequences be damned.

[WBestPresidentEver]

If I hear again that all of this BS that is going on now is President Bush's fault, then I am sending you a Big Bitch slap up side the damn head.
This has been going on for years and years long before Bush became President. It just finally came to a head as it got totally out of control.
Now go bury your heads in the sand and leave President Bush to hell alone !!!
You people that want to Bush Bash and blame President Bush for everything that happens or has happened are so dumb you can't see the forest for the trees.
I have seen this coming for years now and not just during the Bush years !
Get a life and bash your head in the dirt or something while you are burying yourselves. And...if you had money in the market I hope you have lost yous Butts. You deserved it. That's what you get for your bashing and trashing. Karma can be a bitch !

[seekeronos]

The facts:

* The economy has been collapsing, and will continue to collapse well into next year.

* Appearing to offer a "solution" to this problem, the government will grow and consolidate its power over both the private sector economy and individual freedoms, i.e. we will start to look a lot like Canada and Europe.

* Our size (as opposed to Iceland, for example) will help to ameliorate the circumstances and consquences of our collapse... slightly.

* People should store up food, guns, and ammo (preferably unmarked if available) in caches known only to them and trusted individuals

* People should repent and embrace the Lord Jesus Christ as their Lord and Saviour.

One possible benefit out of all of this is that we will learn to embrace frugality and thrift, eat less, rebuild our manufacturing to some extent, and learn humility... as our place and position in the world is reduced to that of a second class power.

The Middle Kingdom (Red China) shall more than happily resume its rightful place as the centre of all human affairs.

[seekeronos]

The other side of this is that we are seeing the stage set for the rise of that final antichrist, the man of perdition and his nearly planet-wide government (and I am not saying that it is Obama) who will deceive the entire world into receiving his damning mark... the mark of prosperity over the seal of the Blood of the Lamb of God.

[seekeronos]

As foar as govt. regulation goes...

I'll have to side with the liberals to some limited extent. At this point, we do *need* regulation to prevent businesses from growing to such an "infallible" size - that they become little different than the government-owned monopolies in other (socialist) nations.

Additionally, that regulation has to be wisely crafted so as not to prevent small business from being hampered by such high walls that only large companies can buy themselves out of.

At the same time, I take issue with Llama on this one thing:

"Conservatism" has not failed. True, conservative principles (not this neo-conservative trash philosophy of hyper-aggressive foreign policy at the cost of nearly ignoring domestic concerns which have nearly brought this republic this Republic to ruin) of our past that made us great... these have not failed.

If we were in fact, to practise conservatism... we would not be in this present mess.

[Fred Beloit]

Scar is very wrong: "I think you meant "Democratic"[policies]. Thanks!"
There used to be a Democrat party. But the Democrats who made up this party became unhappy with this name because they wanted to be members of the Democratic party. So now we have a Republican party composed of Republicans and a Democratic party composed of Democratics. This makes the adjective Democraticic. Thank you.

[Fred Beloit]

Well said WBPE.

[Anon]

I have to agree w/Islama on this one, this is not a Republican or Democratic issue, although each party had particular sacred cows that were involved to some extent, but the overwhelming problem is a problem with society itself.

This problem--that of short term gains vs. long term gains and the stock market taking over business--has been building for decades. Back in the day a company 'went public' to raise money to be used for the company, to build things, to expand, to make actual investments in the company infrastructure, assets and people...today, companies go public simply to make money. It has NEVER, I repeat NEVER made any sense that Company X would be work $50 million on paper as a private enterprise and then list itself on the stock exchange and then overnight it becomes worth $500 million.

The tail has been wagging the dog for some time, when "shareholder value" became the only really important thing and everything that the company actually did--sell, build, innovate, or not--was geared toward keeping its stock price high. That's how the corporate raiders of the early 1980's made their money...by preying on good companies that were undervalued by the "market".

With the advent of derivatives and all the rest of the nonsense of turning everything but your Aunt Mary into a security that could be traded on the stock exchange, the problem multiplied exponentially. But, no one noticed and more importantly almost no one cared. Not Democrats or Republicans. They each saw the gravy train as a benefit.

Let's be honest here folks. No one knows what they are doing with the bailout because I don't think, other than the Great Depression, that there has been this level of a collapse in modern history. CitiBank, people. There are no more independent investment banks, they are all gone--Goldman, Merrill, Lehman--gone.

There is more than enough blame to go around. It was and is idiotic for government to desire that people with a history of failing to pay back money be loaned hundreds of thousands of dollars because 'every American deserves a home'...but that in and of itself did not create the collapse of the U.S. banking system, and make no mistake, the banking system has collapsed. The idea that anyone could have thought that having derivatives in play that amount to more than the GNP made any sense at all is crazy. Again, no one cared, they've all heard for their entire lives that the market will always self regulate. And, to a degree it did. It completely collapsed on itself. Except the government doesn't want to see another Great Depression which is what would happen without any kind of bailout.

Unfortunately, since this situation is unprecedented we're really in the exact same place they were in 1929...trying shit to see if it works.

The "money" that the U.S. Treasury is spending in fact, is virtually worthless. What's it backed by? Nothing. It is monopoloy money, they only thing that gives it any value is the mindset of the world that America is successful and important, and of course, all that military hardware helps. But if you did this as a blind case study, and we were Country X, we would go bankrupt and out of the rubble of the old society would rise something new.

Instead, we're keeping the corpse on life support because that's all anyone knows how to do. We will see huge new regulations on Wall Street that won't really do much good and in another few years or couple of decades there will again be the same kind of breakdown...it happened in the 70's, then the 80's, and the 90's...

Now, every banker knows that he's too big to fail, no matter what kind of foolish judgement he exercises. He will be able to reap millions for a few years and then walk away, with Uncle Sam picking up the tab.....

[templar knight]

I'm with you, Anon. I've been in business for years, and I really don't understand exactly what a derivative is, and how it has any inherent value. It seems to me that this particular market was invented to allow speculative profits to be made by people who had nothing of value to make profits on.

As for the real estate bust, you can blame greed. Greed on the part of bankers who lent the money, greed on the part of real estate agents who sold this property, greed on the part of appraisers, and greed on the part of people who wanted to have a huge house they could not afford.

[Lala]

I read this explanation of banking and derivatives yesterday. It somewhat explains the mess we are in.

Citigroup collapses! Banking Shutdown Possible

by Martin D. Weiss, Ph.D. 11-24-08
Martin D. Weiss, Ph.D.

It pains me deeply to announce that, despite the massive government rescue, yesterday’s collapse of Citigroup could ultimately lead to a shutdown of the global banking system.

For many years, I hoped this would never happen, and I thought we might be able to avoid it.

Indeed, that’s why, my firm, Weiss Research, first began rating the safety of the nation’s banks in the early 1980s, and why I later founded Weiss Ratings, a separate subsidiary dedicated exclusively to safety ratings — on thousands of banks, insurance companies, brokerage firms, mutual funds and stocks.

read more at -
http://www.moneyandmarkets.com/citigroup-collapses-banking-shutdown-possible-28325

[Anon]

My favorite example of how "the market" has become completely divorced from reality is Google and HP. Google has about 20,000 employees and HP has about 150,000. HP manufactures a number of products. Google sells ad space and operates a search engine. Google stock trades at over $200 a share, HP at about $33, the market cap for the companies is approximately the same. That's crazy. The "value" of Google has nothing to do with the company's assets or even their profits. It is imaginary, driven by perception and not economics. Same reason Bear Stearns went under. Same reason Citigroup stock went up after it was going to get a bailout...even though it is really worth exactly the same today as it was on Friday. The stock market declines and jumps have nothing to do with economics or means of production or profits or assets, they're driven by a bandwagon of perception. Running your economy based on perception and speculation is insane.

The only thing that can truly save this country is a complete overhaul of how the "market" functions, taking us back to a time when most companies were privately held and they got their money directly from bank loans not from selling stock. And that will never happen, not in our lifetimes anyway.

[David M]

The Thunder Run has linked to this post in the - Web Reconnaissance for 11/25/2008 A short recon of what’s out there that might draw your attention, updated throughout the day...so check back often.

http://thunderrun.blogspot.com/2008/11/web-reconnaissance-for-11252008.html

[Todd]

Bright spots?
obama has a team of economic moderates that probably could have served bush just as well, if not better. even mccain wouldn't have gotten this much supply siders running the show.

The only reason he is holding off on announcing the suspension of any change for the next 2 years to the capital gains rate is so that he can take the credit when the market comes back 1000 pts, quickly. Why help bush with his own good news?
Posted by: mark l. | Tuesday, November 25, 2008 at 12:21 AM"
---------------------
I'm glad you pointed this out, Mark. This speaks volumes for Obama about his commitment to a much more bipartisan government than the last 8 years, and that Obama will not just pay lip service to the statement of reaching across the aisle. Obama actually will do that. Obama doesn't believe there is absolutely nothing of value in supply-side economics. If he did, he wouldn't be talking about delaying any tax rises until 2011.

I have been saying for awhile now that Obama is going to disappoint the very liberal part of the Democratic Party and surprise the Republicans with centrist policy (which will make it difficult for the GOP to campaign against later on). Whether or not any policies can sort out the mess that our economy is in today is largely in question. I personally am not optimistic that severe economic pain can be avoided, no matter if we bailout/don't bailout Citibank, GM and all the others doubtless to follow etc etc. I don't pretend to know the right way to go about it. But, I do appreciate that Obama is setting the right tone for cooperation in Washington. If we should have learned anything the last 8 years, it's that gridlock in DC with a completely polarized electorate is extremely counterproductive. I hope that Republicans in DC and across the country (and especially people like Limbaugh, Hannity, Malkin et al) tone down the inflammatory socialist rhetoric and give Obama a fair shot at governing. I believe it's in all of our best interests that that happens, and I thank Mark for his evenhanded comments.

One last thought: I don't think Obama cares one whit about who gets the credit for a 1,000 point rise in the DJIA, if it happens while Bush is still here or not. 1,000 point moves in the DJIA seem to be a dime a dozen these days anyway and short term moves don't matter. Long term trend changes matter. Obama really just wants to turn the ship around.

[mark l.]

"One last thought: I don't think Obama cares one whit about who gets the credit for a 1,000 point rise in the DJIA, if it happens while Bush is still here or not. 1,000 point moves in the DJIA seem to be a dime a dozen these days anyway and short term moves don't matter. Long term trend changes matter. Obama really just wants to turn the ship around."

the 1000 pts will not be an isolated incident. January usually features a big push for the market as investement firms gear up for the coming year. there is actually more money on the sidelines than ever before. assuming 8000 is the bottom(my dad called 6000 as bottom, and he is actually a very prudent investor)...

start with the january push, and an announcement of no increase in capital gains and 401ks could come back 20-25% in less than a month and a half. Consumer confidence is the heart of the matter, and nothing is more inspiring than a rapid, huge rebound of retirement accounts. In theory, obama might be able to get us out of a recession by 2q 09, although I think 3q/4q is is a more practical range.

Factor in the potential for a strong january for the market, and follow it up with the reality that the largest market moves occur at the midpoint/bottom(where it is clear we are coming out of recession) of a recession and obama 'might' be able to produce the single largest gain in the market over a years period of ANY president, within 9 months of taking office. consumer confidence, anyone?

[IslamoLlama]

"-- I'm with you, Anon. I've been in business for years, and I really don't understand exactly what a derivative is, and how it has any inherent value. It seems to me that this particular market was invented to allow speculative profits to be made by people who had nothing of value to make profits on. --"

That's hardly a surprise. The derivatives market is only a decade or so old. Most of the people trading them didn't know what they were. They just knew that yesterday the derivative sold for $10 and today it sold for $12, so hurray!

If I understand it correctly, you have your prime investments - your stocks and bonds and loans - and then you have all the financial paper surrounding those central assets. So you can, for instance, buy an insurance policy against a loan you make. Or you can buy an annuity based on return from a group of bonds.

Back in the late 90s, when derivatives first appeared, the US Government choose not to regulate them like other normal assets. Normally, if you issue an insurance policy - say a life insurance policy that pays out $100,000 - you are required to keep a fraction of that payout in reserve (we'll say 10%). So if you issue ten $100k policies, you still need to keep back $100k in cash in reserve. Now you've got $1 mil in paper and only $100k in cash, so you are considered leveraged 10 to 1. If one of your clients dies, you've got the cash to pay out. If two of your clients die before you can regenerate the lost reserve, you're in trouble.

But derivatives are unregulated, so banks didn't bother keeping 10% in reserve. They decided to keep closer to 2.5% in reserve. Now they'd have 40 policies floating around with the cash to only cover one of them. And they were covering the infamous mortgage-backed securities - you know, the mortgages that were issued out to people with no credit and unknown incomes.

But this business was incredibly lucrative. Insurance pays premiums. Insurance on a $100k mortgage pays big premiums. Insurance on millions of $100k mortgages - now that's some serious bank. So the big financial companies started issuing mortgages like they were going out of style. And then the bottom came out. And then the banks realized they could only pay off one mortgage for every forty they'd issued.

And I think I've passed up the definition of derivatives by leaps and bounds and I'm telling everyone shit they already know. That said, for those of you claiming it was Freddie and Fannie who are to blame - well, no. At least, not entirely. F&F weren't issuing these ridiculous mortgage insurance policies. But they were loaning money to banks that were making incredibly risky mortgages. The banks weren't issuing mortgages because the government forced them to. They were issuing the mortgages because there was a great deal of money in issuing mortgages and the resulting insurance policies. Bear Sterns and Washington Mutual didn't collapse because they were forced to make bad financial bets. They made those bets of their own free will.

That's worth noting.

[Todd]

"If I hear again that all of this BS that is going on now is President Bush's fault, then I am sending you a Big Bitch slap up side the damn head.
This has been going on for years and years long before Bush became President. It just finally came to a head as it got totally out of control.
Now go bury your heads in the sand and leave President Bush to hell alone !!!
You people that want to Bush Bash and blame President Bush for everything that happens or has happened are so dumb you can't see the forest for the trees.
I have seen this coming for years now and not just during the Bush years !
Get a life and bash your head in the dirt or something while you are burying yourselves. And...if you had money in the market I hope you have lost yous Butts. You deserved it. That's what you get for your bashing and trashing. Karma can be a bitch !
Posted by: WBestPresidentEver | Tuesday, November 25, 2008 at 02:22 AM"
------------------------------
Here's my problem with President Bush on the economy: Bush never had any fluid thinking reflecting the changing realities of the economy. The tax cuts that he proposed during the 2000 campaign were against a backdrop of an economy operating with a surplus and projected surpluses. Once the stock market bubble burst and 9/11/01 occurred, the economy went into a shallow recession and budget deficits and projections of future budget deficits happened. Factor in the cost of the Iraq War and the senior citizen medicare prescription benefit, and the deficits ballooned. Economic realities vs 2000 changed drastically, but Bush's thinking never showed any fluidity regarding the changing reality. Bush never saw the budget deficits and skyrocketing national debt as a problem. Ronald Reagan was very pragmatic during his first term and did take action (raising taxes) when the budget deficits as a percentage of GDP got to alarming levels. George W. Bush never showed any concern or any pramatism. As a conservative WBPE, I wonder why Bush's lack of concerns about growing deficits didn't bother you?

And, I didn't lose money in the markets. I made money in the markets. Sorry about that.

[mark l.]

"This speaks volumes for Obama about his commitment to a much more bipartisan government than the last 8 years"

I wouldn't go that far. Economic theory supports the supply siders. One can be 'right' arguing either side of social issues, but high taxation does not spur economic growth in any way. Lower taxation increases growth AND revenue.

charlie rangel is a supporter of CUTTING corporate tax. Larry summers cut capital gains from 28% to 20%.

The largest disconnect in mainstream america is the democratic advocacy(by relatively few democrats) that america is better served to spread the wealth via taxation. Given the zeigler study on the intellect of obama voters, I can't help but feel that obama's recent attempts to have people curb their enthusiasm has been specifically directed at those who voted for him out of a sense of desire to punish the rich. The mixed signals of obama's campaign rhetoric versus his selection of economic advisers is giving me whiplash.

bush was correct on tax cuts spurring economic growth, but failing to constrain govt spending is the greatest sin. these are two very seperate ideas, independent of the other. IF obama wants to prove successful, he will have to constrain the growth of govt. If he continues to spend more than we make, beyond a two year grace period, he will merely be bush's third term.

[mark l.]

"The tax cuts that he proposed during the 2000 campaign were against a backdrop of an economy operating with a surplus and projected surpluses."

actually it was the beginning of econmic slowdown. The dotcom bubble was still bursting, and 1q 2001, when bush took office had a recessionary number of -1.7% growth. Likewise, when clinton took office in 1q 1993, he had 4.1% growth. The economic surplus is a myth, and democrats did still have control of the senate from 00-02, see:jim jeffords.

the dotcom bust was roughly to the tune of 5.5 trillion. Factor in the economic fallout of 9/11, and bush got stuck with a 7 trillion dollar hole to climb out of.

I am curious todd, when the democrats have actually focused on the national debt...
clinton was forced into it by a gop house and senate. Any incidennce where dems(or gop) controlled all three branches and pursued a balanced budget?

the late 90's surplus was a product of conservatives shutting down the govt until a balanced budget was struck with a democratic president. it's a fact.

[Todd]

the 1000 pts will not be an isolated incident. January usually features a big push for the market as investement firms gear up for the coming year. there is actually more money on the sidelines than ever before. assuming 8000 is the bottom(my dad called 6000 as bottom, and he is actually a very prudent investor)...

start with the january push, and an announcement of no increase in capital gains and 401ks could come back 20-25% in less than a month and a half. Consumer confidence is the heart of the matter, and nothing is more inspiring than a rapid, huge rebound of retirement accounts. In theory, obama might be able to get us out of a recession by 2q 09, although I think 3q/4q is is a more practical range.

Factor in the potential for a strong january for the market, and follow it up with the reality that the largest market moves occur at the midpoint/bottom(where it is clear we are coming out of recession) of a recession and obama 'might' be able to produce the single largest gain in the market over a years period of ANY president, within 9 months of taking office. consumer confidence, anyone?

Posted by: mark l. | Tuesday, November 25, 2008 at 01:12 PM
------------------
I agree with your dad, Mark. Price earnings ratios are too high for a bear market, especially when you consider that SP500 earnings are seeing projections of $50-65 per share for 2009. With the SPY at 850 right now, that's a 13-17 p/e based upon those range of projections - not at all cheap for a bear market where multiple compressions are typical. In 1974, when stocks became a hated asset class the p/e on the SP500 hit a low of 7.4 at its nadir. If the market would react positively to capital gains tax rates remaining the same (a cut in the corporate tax rate would be more effective in raising stock prices IMO), it would likely meet selling based upon rich valuations. A 14 or 15 p/e ratio in a bull market is historically reasonable, but not in a bear market. Sentiment now is not indicative that stocks are a hated asset class, not when you still have people thinking that stocks are a good long term investment. Stocks become hated when almost everybody just wants out of the stock market, no one wants to hear about the stock market, no one ever wants to buy stocks again. I don't think we're there yet.

I also don't believe there will be a surge in January. The seasonally strong period historically is from October thru April, and so far that has historical pattern has been defied. Looking back to the bear market of 2000-2003 there was a very weak October-December, 2000 quarter and the market had a vicious selloff at the beginning of 2001. Another thing to keep in mind that the bear market of 2000-2003 was a 3 year bear market during a shallow recession. That bear market was more of a market event correcting a very overvalued situation, and not so much of an economic event. This bear market is just 13 months old, and it's both an economic event and a market event, what with the credit freeze and massive losses threatening the financial system. There is reason to believe this bear market should be more protracted than the bear market of 2000-2003. It's quite alarming that the losses in the SP500 so far in 13 months are equal to the losses that took 3 years in the previous bear market, and that the p/e ratio on the SP500 a year ago was not expensive and we crashed anyway. This is a massive deleveraging that is taking corporate profits down enormously. It hasn't yet taken down the p/e ratio. If that happens, look out below.

[Todd]

"This speaks volumes for Obama about his commitment to a much more bipartisan government than the last 8 years"

I wouldn't go that far. Economic theory supports the supply siders. One can be 'right' arguing either side of social issues, but high taxation does not spur economic growth in any way. Lower taxation increases growth AND revenue.
--------------
If Obama were a far left socialist, Mark, there would be no supply-siders giving him advice. He would banish them to the hinterlands. He will be a centrist and be more bi-partisan than Republicans believe him to be, or far left Democrats hope he will be. I haven't read Daily Kos in the past couple of days, but I'll bet they're not happy about some of those selections.

[mark l.]

lama is correct on the derivatives...

they served as insurance for risky mortgages. AIG is the poster child of a complete lack of consideration for how risky the subprime mortgages really were. Anyone who went out and bought subprimes bought an equivalent amount of 'puts' on their investment. some finiancial companies did consider their risk, and straddled the outcome.

AIG had over 300 billion in obligations to France alone, should the subprimes fail. Had they assessed the risk they would have charged far more for insuring such a risky investment.

the larger problem is that when one looks at the market performance, from bottom to peak, 2000-2007, the growth was pathetic. The growth of options was rampant. Money that was being created wasn't being invested in actual companies, but in betting for/against the companies. Consider a company with a market value of 50 million, but with an additional 40 million bet on the company growing, along with 60 million bet against the company. This is a situation where 100 million dollars is taken out of the actual stock price.

This is one of the rare cases where I would advocate a massive, punitive tax increase to divert hedge fund money back into the market. Tax derviatives at 50%, lower capital gains on equities, and watch the market explode. I would exempt actual commodities food, oil, gold etc... from this scenario and allow the futures market in that narrow spectrum, but it is clear that the equities market is not ready to make the move to futures, without setting our economy up for future disasters.

[mark l.]

"If Obama were a far left socialist, Mark, there would be no supply-siders giving him advice."

I am at a lost to find a respected econmist who doesn't accept supply side theory, if not fully, at least in parts.

His campaign rhetoric was class warfare, pure and simple. I made the mistake of taking obama at his word.

[Todd]

"The tax cuts that he proposed during the 2000 campaign were against a backdrop of an economy operating with a surplus and projected surpluses."

actually it was the beginning of econmic slowdown. The dotcom bubble was still bursting, and 1q 2001, when bush took office had a recessionary number of -1.7% growth. Likewise, when clinton took office in 1q 1993, he had 4.1% growth. The economic surplus is a myth, and democrats did still have control of the senate from 00-02, see:jim jeffords.

the dotcom bust was roughly to the tune of 5.5 trillion. Factor in the economic fallout of 9/11, and bush got stuck with a 7 trillion dollar hole to climb out of.

I am curious todd, when the democrats have actually focused on the national debt...
clinton was forced into it by a gop house and senate. Any incidennce where dems(or gop) controlled all three branches and pursued a balanced budget?

the late 90's surplus was a product of conservatives shutting down the govt until a balanced budget was struck with a democratic president. it's a fact.
-------------------------------
The 90's were a period where there actually was some centrist economic policy happening, and it led to good economic times. Credit goes to the Republican Congress and to Bill Clinton for being able to work together. I can't tell you the last time the Dems controlled the White House, the Senate and the House (was it Carter? or 1992-1994?). And, I don't know if they worked towards balanced budgets. Not in 1992 they didn't. But prior to 1981, budget deficits were pretty insignificant and certainly as a percentage of GDP were tiny. I maintain that a lot of the Democrats elected in 2006 and 2008 come from conservative districts, and therefore are a more conservative Democrat than the Democrats of the 1970's. I expect this type of Democrat to rebel against any excessively liberal Pelosi/Reed agenda, as they won't find themselves in a position to be re-elected in their districts if they don't.

Also, please post a link to some data that shows the dot.com bust was a $5.5 trillion dollar debacle. I assume you are meaning a $5.5 trillion drop in GDP? Please clarify what that is, and what the tax revenue difference because of that bust was.

[Todd]

"I am at a lost to find a respected econmist who doesn't accept supply side theory, if not fully, at least in parts.
Posted by: mark l. | Tuesday, November 25, 2008 at 02:41 PM"
----------------------
Nouriel Roubini is perhaps the most respected economist today, based upon his right-as-rain calls on the credit crisis and the economy. You'd agree with that assessment, Mark?

Regarding supply side economics, Roubini wrote: "So, in conclusion the verdict from history and empirical evidence is quite clear. Supply side economics is "voodoo economics". Reductions in tax rates (starting from initial moderate tax rate levels) do not significantly increase labor supply and savings, do not increase economic growth, do not raise total tax revenue and do not reduce budget deficits. Their likely effect on the level and growth rate on output is close to zero while they lead to significantly larger budget deficits."

For the full article : http://pages.stern.nyu.edu/~nroubini/SUPPLY.HTM

The concluding comment is at the bottom of the article.

[mark l.]

wiki had the number...you can chase it down.

"The Dot-com bubble crash wiped out $5 trillion in market value of technology companies from March 2000 to October 2002.[11]"
http://en.wikipedia.org/wiki/Dot-com_bubble

to

" the implosion that began in 2000 and, within two years, wiped out $5 trillion in paper wealth on Nasdaq, the exchange on which many of these companies were traded. Nasdaq peaked at $6.7 trillion in March 2000 then plummeted to $1.6 trillion by October 2002. (It has since recovered to $3.6 trillion.)"

http://www.qctimes.com/articles/2006/07/17/news/business/doc44bb0a1ab97ce159604273.txt

I personally saw a drop in 401ks, from summer 97 to 01 of 40%, on average.
Imagine the govt expecting receive 20% on the cash out, and the money disappears.

"I maintain that a lot of the Democrats elected in 2006 and 2008 come from conservative districts"

absolutely. it wasn't the year of the democrats, it was the year of the 'blue dog' democrats. yes the dems regained the house, but only by lurching to the right. I feel pretty good about the philosphical balance, once I get past party affiliation. While pelosi controls a hefty majority, her views are probaly shred by less than 40% of the house. Definitely not the dems of the 70's, who are singularly responsible for driving me to the right and reagan. I wish this congress luck at trimming the budget, and will give them a grace period for the year...

my greatest fear is that we incur long term obligatory debt, as opposed to a momentary large amount of spending...healthcare would not be a well recieved expense this year, but should obama hold off, with a strong wind of market restoration at his back(and significant capital gains to be accrued) he would have far more clout on the matter. If he tries to spend impetuously in his first year, I would not be shocked to see the blue dogs and the remaining house gop intercede.

[mark l.]

"Nouriel Roubini is perhaps the most respected economist today, based upon his right-as-rain calls on the credit crisis and the economy. You'd agree with that assessment, Mark?"

a week ago, yes.

upon further review? roubini is a fraud.

his predictions were reported by a woman who said she heard him speak at conference in 2006. the problem is that the houston chronicle went and looked at his speech that was being touted. The predictions and sentiments were not there. Houston chronicle chases it down further and finds that he was predicting a recession in 2005, based upon Katrina. The predictions he made in 05 were falsely attributed to his 06 speech, which made him sound eerily accurate. he isn't.

[mark l.]

http://erictyson.live.subhub.com/articles/20081024_1

As for Bloomberg crediting Roubini for predicting the current financial meltdown, stock market plunge and recession, some perspective is in order. Back in the summer of 2006, Roubini spoke at an International Monetary Fund event and predicted an imminent U.S. recession according to economist Anirvan Banerji who participated with Roubini in a panel discussion. A transcript of that event shows that Roubini did not predict a market meltdown or any of the other problems he now claims to have predicted as quoted by Bloomberg. Banerji says that Roubini predicted a recession in 2004 caused by U.S. trade deficits, federal reserve interest rate hikes and high oil prices. (His recession calls dating back to at least 2004 is verified by a Business Week article I'll get to in a moment).

"In 2005, Roubini saw Hurricane Katrina and high oil prices causing a U.S. economic slowdown. "This is a very delicate moment. The economy is already very imbalanced. On top of that, we've had a massive oil shock and now we have a natural disaster that might be something of a tipping point."

Here's another quote with Roubini's poor predictions from an article on his own business school's web site: "Among those sporting a red face at Christmas dinner was Nouriel Roubini...Roubini was featured in The Enigmatic Greenback, specifically suggesting the US dollar was in an "anti-gravity" phase that was about to reverse. He has kicked off 2006 with a mea culpa, admitting that he had indeed called 2005 incorrectly. Dispirited? No way. Roubini is back and he's not taking a backward step. 2006 will be the year of the US economic slowdown, and thus the global economy will hit slowdown as well."

[Todd]

A fraud???? Let's get real, Mark. Economics is a subjective science, and Roubini's timing may have been off by a year or two years but his overall thesis was 100% correct. If you had paid attention to Nouriel Roubini and invested according to his predictions, you would have saved yourself a fortune in losses and could have made a killing shorting the market, financials and housing stocks.

Just compare Nouriel Roubini in this video from 2006, to the 2nd one posted which features Art Laffer, the father of supply-side economics, and his rosy predictions in 2006 insisting that there was nothing out there to worry about. It was extremely toxic for the portfolios of anyone who thought Laffer knew what he was talking about.

http://www.youtube.com/watch?v=7KJ3Ih7OAuY (Roubini)
http://www.leavittbrothers.com/stocks-options-futures-trading-videos/2008/11/crisis-only-just-beginning-says-peter-schiff.cfm
(Laffer)

You better inform CNBC, Bloomberg, Barron's and Congress (where he has testified on the economic crisis) that Nouriel Roubini is a fraud. Just think of what a disservice they are doing to all their viewers and subscribers and constituents by forcing them to listen to the opinions of such a fraud !

[Todd]

Oh yea, and then Arthur Laffer comes out with a book about 2 months ago entitled "The End of Prosperity", after the stock market has already tumbled 45%. Wonderful timing, Art. Thanks for the heads up, in advance!!!

Here's some news back for ya, Art: "Lincoln's shot." Go do some trades on that.

[IslamoLlama]

"-- Oh yea, and then Arthur Laffer comes out with a book about 2 months ago entitled "The End of Prosperity", after the stock market has already tumbled 45%. Wonderful timing, Art. Thanks for the heads up, in advance!!! --"

Heh.

"-- Laffer had been on the economics faculty at the University of Chicago since 1967. In 1970, his mentor, George Shultz, brought him to Washington to serve as a staffer in the Office of Management and Budget. Laffer quickly suffered a bout with infamy when he made a wildly unconventional calculation about the size of the 1971 Gross National Product, which was far more optimistic than estimates elsewhere. When it was discovered that Laffer had used just four indicators to arrive at his figure-- most economists used hundreds if not thousands of inputs--he became a Washington laughingstock. Indeed, he turned out to be horribly wrong. Laffer left the government in disgrace and faced the scorn of his former academic colleagues --"

http://www.tnr.com/coverstory/story.html?id=880f4273-e2d6-4914-b15b-ffcce401155a

He's like the William Kristol of economics. Funny how business titan Warren Buffet is crowing about how US equities are prime investment turf while non-billionaire Arthur Laffer is predicting the end of the financial world.

Who should we trust? Hmmmm....

[mark l.]

"Let's get real, Mark. Economics is a subjective science, and Roubini's timing may have been off by a year or two years but his overall thesis was 100% correct."

I'll make a video, me sitting at a roulette wheel placing large bets on black. I splice together the time I win, show you the film, and you walk away believing I am the greatest roullete player in history.

predicting a serious housing bubble in 2007 is the work of genius?

to repeat above link:
"A transcript of that event shows that Roubini did not predict a market meltdown or any of the other problems he now claims to have predicted as quoted by Bloomberg." from summer 2006.

the press has taken his 2006 predictions, which did not entail any correct assumption about the actual causes, and offerred the false choice that he forsaw the forsaw the actual cause.

he did not offer a housing bubble as the cause of our future economic condtions until 2007, when everyone already knew it to be true.

the guy has predicted a recession since 2004. you want to show me a clip of him being right, once, and not even because his reasoning was proven...

I am the greatest roulette player, ever.

[mark l.]

find a quote from 2006 where roubini predicts the failure of the banking system based on subprime lending...

I've looked. There is none.

[Todd]

"A transcript of that event shows that Roubini did not predict a market meltdown or any of the other problems he now claims to have predicted as quoted by Bloomberg." from summer 2006.

the press has taken his 2006 predictions, which did not entail any correct assumption about the actual causes, and offerred the false choice that he forsaw the forsaw the actual cause.

he did not offer a housing bubble as the cause of our future economic condtions until 2007, when everyone already knew it to be true.
----------------------------------------

Come on, Mark. At least make me look a little harder to rebut your baseless statements.

http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html

(summer of 2006) On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession.He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

The same time Laffer said there was nothing to worry about. Laffer, the father of supply side economics.

[mark l.]

after you wasted your time looking for the guy who pointed out the pending disaster, related specifcally to subprime lending for 2006,

I'll trump you.

"If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole."

the 'economist' was John Mccain, 5/25/06.

http://hotair.com/archives/2008/09/17/mccains-attempt-to-fix-fannie-mae-freddie-mac-in-2005/

[mark l.]

mccain beat roubini by a couple of months there...