Comments on: Larry Summers Warns of "Deepening Crisis" http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis.html Sun, 22 Nov 2009 04:39:16 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Juan http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis.html#comment-1926 Juan Tue, 27 Nov 2007 05:48:00 +0000 http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis/#comment-1926 a,<br/><br/>Please don't include all economists, as some, though a still small number, are heterodox and recognize that demand-side solutions can well be non-solutions and further undermine.<br/><br/>You see, Summers et al are proto-typical neoclassic types, which is to say dependent on a set of theories based on very questionable assumptions of methodological individualism, instrumentalism and equilibrium.<br/><br/>Their general theory stands against reality, demands that the latter conform with the former... a,

Please don’t include all economists, as some, though a still small number, are heterodox and recognize that demand-side solutions can well be non-solutions and further undermine.

You see, Summers et al are proto-typical neoclassic types, which is to say dependent on a set of theories based on very questionable assumptions of methodological individualism, instrumentalism and equilibrium.

Their general theory stands against reality, demands that the latter conform with the former…

]]> By: Anonymous http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis.html#comment-1918 Anonymous Tue, 27 Nov 2007 03:56:00 +0000 http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis/#comment-1918 Larry,<br/><br/>You are behind the curve and off the mark. Good thing my clients did not listen to your fundamentally-flawed policy prescriptions.<br/><br/>Pretty obvious he has other agendas with this rubbish.<br/><br/>I love how these guys think they can parachute in and parachute out. Larry, you my friend are out of your league, finance has changed dramatically in the last 10 years while you were stuffing undergrads. Larry,

You are behind the curve and off the mark. Good thing my clients did not listen to your fundamentally-flawed policy prescriptions.

Pretty obvious he has other agendas with this rubbish.

I love how these guys think they can parachute in and parachute out. Larry, you my friend are out of your league, finance has changed dramatically in the last 10 years while you were stuffing undergrads.

]]> By: Been there http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis.html#comment-1909 Been there Tue, 27 Nov 2007 01:18:00 +0000 http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis/#comment-1909 It seems that Summers' focus upon trying to stoke demand by lowering interest rates is misplaced. The obvious acute symptom is lack of demand for real estate. Some think a particular cause for this is the high cost of capital available to potential real estate purchasers(Rates are too high). Lower rates = increased demand, Right? Don't think so. Real estate prices probably got ahead of themselves over the past few years relative to other assets, relative to the increase in earned income, etc. However, it seems to me that the chronic underlying problem that we're currently experiencing is really one about trust... or the lack thereof. Investors have lost faith in the value of the financial products that they've been asked to buy-and by default- in the credit reporting agencies' abilities to articulate a realistic risk assessment of the financial instruments that they are supposed to rate. When the accounting profession blew it in the late 1990's, trust was restored only after there was a great deal of media attention attuned to the audit failures, creation of a new oversight agency(PCAOB) that was given real teeth, and the passage of new laws and regulations(Sarbanes Oxley, etc). It seems that those steps went a long way to restoring faith in the in the financial reporting system. I've observed nothing similar to that happening now to rectify the current crisis of confidence. There seems to be very little focus upon the rating agencies, other than what took place after the first few weeks in August and early September when significant problems first became apparent. Unfortunately, trying to solve this problem with interest rate tweaks would have been like telling all those folks who became ill eating tainted food at fast food establishments a few years ago. "Don't worry, from now on we'll ship the product to our restaurants using the quickest, most modern transportation equipment available." The reality was that the food was actually spoiled from the moment it was processed/ manufactured. Increasing logistical efficiencies just increases the speed at which rotten food can change hands. It seems that Summers’ focus upon trying to stoke demand by lowering interest rates is misplaced. The obvious acute symptom is lack of demand for real estate. Some think a particular cause for this is the high cost of capital available to potential real estate purchasers(Rates are too high). Lower rates = increased demand, Right? Don’t think so. Real estate prices probably got ahead of themselves over the past few years relative to other assets, relative to the increase in earned income, etc. However, it seems to me that the chronic underlying problem that we’re currently experiencing is really one about trust… or the lack thereof. Investors have lost faith in the value of the financial products that they’ve been asked to buy-and by default- in the credit reporting agencies’ abilities to articulate a realistic risk assessment of the financial instruments that they are supposed to rate. When the accounting profession blew it in the late 1990’s, trust was restored only after there was a great deal of media attention attuned to the audit failures, creation of a new oversight agency(PCAOB) that was given real teeth, and the passage of new laws and regulations(Sarbanes Oxley, etc). It seems that those steps went a long way to restoring faith in the in the financial reporting system. I’ve observed nothing similar to that happening now to rectify the current crisis of confidence. There seems to be very little focus upon the rating agencies, other than what took place after the first few weeks in August and early September when significant problems first became apparent. Unfortunately, trying to solve this problem with interest rate tweaks would have been like telling all those folks who became ill eating tainted food at fast food establishments a few years ago. “Don’t worry, from now on we’ll ship the product to our restaurants using the quickest, most modern transportation equipment available.” The reality was that the food was actually spoiled from the moment it was processed/ manufactured. Increasing logistical efficiencies just increases the speed at which rotten food can change hands.

]]> By: Independent Accountant http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis.html#comment-1906 Independent Accountant Mon, 26 Nov 2007 22:34:00 +0000 http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis/#comment-1906 William Buckley once said he "would rather be governed by the first 100 names in the Boston phone directory than Harvard's faculty". Summers is a Harvard economics prof. Of course, we should note that Buckley never said he would "rather be governed by the first 100 names in the New Haven phone directory than Yale's faculty". Boolah boolah. Buckley was a Yale man. William Buckley once said he “would rather be governed by the first 100 names in the Boston phone directory than Harvard’s faculty”. Summers is a Harvard economics prof. Of course, we should note that Buckley never said he would “rather be governed by the first 100 names in the New Haven phone directory than Yale’s faculty”. Boolah boolah. Buckley was a Yale man.

]]> By: Anonymous http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis.html#comment-1901 Anonymous Mon, 26 Nov 2007 18:10:00 +0000 http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis/#comment-1901 Summer writes “On the information available, the “super conduit” has worrying similarities with Japanese banking practices of the 1990s that aroused criticism from American authorities for their lack of transparency, suppression of genuine market pricing of bad credits”; however, in the next paragraph he indicates that the government needs to do everything possible to prop up prices for a different asset class…residential real estate. Isn’t holding up the housing market going to lead to the same problem…a distortion in the market place resulting in a slow multi-year grind down in home prices that limits economic growth for years to come? I feel like Larry needs to address why we shouldn’t take our bitter medicine in the near term and get it behind us. <br/><br/>Imagining government sponsored work-outs that permit homeowners to plow money/savings into an overvalued asset for the next several years is actually quite sad. Summer writes “On the information available, the “super conduit” has worrying similarities with Japanese banking practices of the 1990s that aroused criticism from American authorities for their lack of transparency, suppression of genuine market pricing of bad credits”; however, in the next paragraph he indicates that the government needs to do everything possible to prop up prices for a different asset class…residential real estate. Isn’t holding up the housing market going to lead to the same problem…a distortion in the market place resulting in a slow multi-year grind down in home prices that limits economic growth for years to come? I feel like Larry needs to address why we shouldn’t take our bitter medicine in the near term and get it behind us.

Imagining government sponsored work-outs that permit homeowners to plow money/savings into an overvalued asset for the next several years is actually quite sad.

]]> By: Anonymous http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis.html#comment-1897 Anonymous Mon, 26 Nov 2007 12:21:00 +0000 http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis/#comment-1897 If we forget, for the moment, Summers interest rate prescription, and just focus on "maintaining demand in the housing market", one thing becomes painfully obvious. Demand at THESE PRICES cannot be maintained for the people who would live in the overpriced housing stock produced in the recent boom. If you look at the annual rise of Fannie and Freddie loan limits over the past 5 or 6 years, the growth has been at a nearly 9 % rate. Inflation adjusted income growth has been almost stagnant for a large percentage of the potential occupants. Only a price reduction or 50 year mortgages or subsidized rates can bridge this gap. RHK If we forget, for the moment, Summers interest rate prescription, and just focus on “maintaining demand in the housing market”, one thing becomes painfully obvious. Demand at THESE PRICES cannot be maintained for the people who would live in the overpriced housing stock produced in the recent boom. If you look at the annual rise of Fannie and Freddie loan limits over the past 5 or 6 years, the growth has been at a nearly 9 % rate. Inflation adjusted income growth has been almost stagnant for a large percentage of the potential occupants. Only a price reduction or 50 year mortgages or subsidized rates can bridge this gap. RHK

]]> By: Independent Accountant http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis.html#comment-1895 Independent Accountant Mon, 26 Nov 2007 08:34:00 +0000 http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis/#comment-1895 What is this "comprehensive" nonsense? Immigration reform? Is Larry Summers (LS) a Bush Administration flak? Does LS want to leave Harvard for a say, $50 million a year job at, drumroll please, Goldman Sachs? LS now sees things are worse than three months ago. So? Where has he been all along? Is Hank Paulson writing LS's scripts? Or vice versa? LS seems to want to reduce interest rates. Has he followed the dollar on the foreign exchange markets? The Euro was $1.48 last time I looked. Is there any US Kafkian "person of consequence" with the guts to say, "liquidate Citigroup"? The alternative: liquidate the dollar. My answer: got gold? What is this “comprehensive” nonsense? Immigration reform? Is Larry Summers (LS) a Bush Administration flak? Does LS want to leave Harvard for a say, $50 million a year job at, drumroll please, Goldman Sachs? LS now sees things are worse than three months ago. So? Where has he been all along? Is Hank Paulson writing LS’s scripts? Or vice versa? LS seems to want to reduce interest rates. Has he followed the dollar on the foreign exchange markets? The Euro was $1.48 last time I looked. Is there any US Kafkian “person of consequence” with the guts to say, “liquidate Citigroup”? The alternative: liquidate the dollar. My answer: got gold?

]]> By: a http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis.html#comment-1894 a Mon, 26 Nov 2007 08:30:00 +0000 http://www.nakedcapitalism.com/2007/11/larry-summers-warns-of-deepening-crisis/#comment-1894 "First, maintaining demand must be the over-arching macro-economic priority." WTF? When this is over, can we just ban all economists (and especially the "A-list ones)? Before the crisis, everyone agreed the American consumer was in too much debt and needed to save more. Now that the problem is being addressed - by credit for the consumer drying up - we're supposed to find a way to support demand and have the consumer continue consuming. Double the limit on everyone's credit card? Give everyone a free house? Have the government go even further into debt (so it won't be able to afford to honor its Social Security obligations??). Borrow and spend, borrow and spend. At some point it just can't go on. “First, maintaining demand must be the over-arching macro-economic priority.” WTF? When this is over, can we just ban all economists (and especially the “A-list ones)? Before the crisis, everyone agreed the American consumer was in too much debt and needed to save more. Now that the problem is being addressed – by credit for the consumer drying up – we’re supposed to find a way to support demand and have the consumer continue consuming. Double the limit on everyone’s credit card? Give everyone a free house? Have the government go even further into debt (so it won’t be able to afford to honor its Social Security obligations??). Borrow and spend, borrow and spend. At some point it just can’t go on.

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