Comments on naked capitalism: Is the Credit Crisis Really Over? Minsky Would Say...

``An insatiable demand for liquidity is a patholog...

2008-05-05T19:16:00.000-04:00

``An insatiable demand for liquidity is a pathological condition'' -- Minsky

The only way to fix this problem is to reign in th...

2008-05-05T14:55:00.000-04:00

The only way to fix this problem is to reign in the Fed, and create a new, more sane system:

www.TakeBackTheFed.com

Mark
www.siv0.com

Arguably one of the finest posts here in some time...

2008-05-05T11:45:00.000-04:00

Arguably one of the finest posts here in some time.

I think another issue is that of the points made, they form a "fearful synergy":
* The financial sector is a big part of our economy.
* The sector essentially focuses on short-term gains based on manipulation.
* The focus on short-term gains prevents long-term development.
* Thus a large sector of our economy is not focused on maximizing long-term development.

In short our economy is NOT about being an economy in the functional-productive sense. It's a giant gambling system with no goal of building a productive system with long-term reliable payoffs.

And thus like any gambling system, unsustainable with a mighty financial hangover on the horizon.

I suspect that this financial crisis will not be o...

2008-05-04T15:06:00.000-04:00

I suspect that this financial crisis will not be over until we see the great failure of insurance (due to excessive leveraging along with multi layering of moral hazard) and long term US treasury bonds below 3%.

This event has been labeled as a US subprime problem but it is actually a global prime problem.

What happens when investors don't step up at the t...

2008-05-04T14:56:00.000-04:00

What happens when investors don't step up at the treasury auction?

The primary dealers have to take down the inventory...good thing TAF was bumped $50 billion!

:)

What happens when nobody shows up to bid at a Trea...

2008-05-04T13:57:00.000-04:00

What happens when nobody shows up to bid at a Treasury auction because the rates are too low? This happened (I believe) in 1980.

The "Arbitrage Capitalism" apologists have one poi...

2008-05-04T13:47:00.000-04:00

The "Arbitrage Capitalism" apologists have one point in their favor: volatility, of a sort, has actually been quite low.

I'm referring to Treasury bond yields. They reflect the presumed price, or premium, extracted by borrowers for having the "inmates run the asylum." At this point, that price is exceedingly low, and the apologists know it.

IMO, the whole Arbitrage Capitalism regime relies on this low Treasury premium. Which means it relies on the dollar recycling of dollar peggers like China. The problem is that dollar recycling is creating massive inflation in dollar peg countries -- a situation that is clearly unsustainable. That is why the Arbitrage Capitalism's days remaining are numbered in tens and not hundreds.

Anon of 1:29,OMG, how embarrassing! That sentence ...

2008-05-04T13:46:00.000-04:00

Anon of 1:29,

OMG, how embarrassing! That sentence was lame anyhow and I rewrote it. Thanks for the catch.

The "their" in the first sentence should be "there...

2008-05-04T13:29:00.000-04:00

The "their" in the first sentence should be "there". Apostates out there, not out their.

I have trouble with the "eye of the storm" analogy...

2008-05-04T12:38:00.000-04:00

I have trouble with the "eye of the storm" analogy. Having grown up in the hurricane zone, I think we have only seen the outer bands of the storm.

Land fall will be a bitch

"Stimulus could also come from the related "disast...

2008-05-04T11:08:00.000-04:00

"Stimulus could also come from the related "disaster capitalism complex" so well studied by Naomi Klein--that "full fledged new economy in home land security, privatized war and disaster reconstruction tasked with nothing less than building and running a privatized security state both at home and abroad." Klein says that, in fact, "the economic stimulus of this sweeping initiative proved enough to pick up the slack where globalization and the dot.com booms had left off. Just as the Internet had launched the dot.-com bubble, 9/11 launched the disaster capitalism bubble." This subsidiary bubble to the real estate bubble appears to have been relatively unharmed so far by the collapse of the latter.

"It is not easy to track the sums circulating in the disaster capitalism complex, but one indication is that InVision, a General Electric affiliate, producing high tech bomb detection devises used in airports and other public spaces received an astounding $15 billion in Homeland Security contracts between 2001 and 2006.

"Whether or not "military Keynesianism" and the disaster capitalism complex can in fact play the role played by financial bubbles is open to question. For to feed them, at least during the Republican administrations, has meant reducing social expenditures, resulting in their positive employment effects being overwhelmed fairly quickly by reductions in effective demand. A study Dean Baker cited by Johnson found that after an initial demand stimulus, by about the sixth year, the effect of increased military spending turns negative. After 10 years of increased defense spending, there would be 464,000 fewer jobs than in a scenario of lower defense spending.

"But even more important as a limit to military Keynesianism and disaster capitalism is that the military engagements to which they are bound to lead are likely to create quagmires such as Iraq and Afghanistan that could trigger a backlash both abroad and at home. This would eventually erode the legitimacy of these enterprises, reduce their access to tax dollars, and erode their viability as sources of economic expansion in a contracting economy."

http://www.focusweb.org/capitalism-in-an-apocalyptic-mood.html?Itemid=1

I read Noland's piece and have been saying similar...

2008-05-04T09:34:00.000-04:00

I read Noland's piece and have been saying similar things since October.

Is this what the Federal Reserve is holding now?S&...

2008-05-04T08:28:00.000-04:00

Is this what the Federal Reserve is holding now?

S&P expected recoveries of CDOs of U.S. home-loan bonds created since Sept. 30, 2005

Tranche Predicted Recovery
------- ------
super-senior AAA 60%
AAA 35%
AA 5%
A 0%

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOBD4f72Wpio

So long as 'Club Fed' continues to build up their ...

2008-05-04T06:54:00.000-04:00

So long as 'Club Fed' continues to build up their collective tab rathern than pay it down, this thing ain't over. And I'm walking with AutoDog in that the principal economic strategy of our nation for a generation has been built on Lawyers, Guns & Money.

After Minsky's cogent comments re: the debalce of 1987-91, what was the consensus voice of the Street and the mainstream media?: "Deregulation and lower taxes will elimiate policy blunders and efficieintly allocate capital." This after the relative success of RTC, a government organized and run and taxpayer financed normalization of the property markets in states which had bankrupted themselves on speculation, more or less. Now we have a similar effort on a far vaster scale (which won't succeed), to use government organized, taxpayer backstoped intervention to stabilize the private-profit excesses of intermediaries, cronies, and fabulators. The Friedmanites and the Milken gravey-trainers just can't get _anything_ right: that takes some intellectual honesty.

Deflation per se may not be the systemic risk. But...

2008-05-04T05:04:00.000-04:00

Deflation per se may not be the systemic risk. But liquidity crisis leading to a severe downturn, followed by the inevitable job losses and shrinking of consumption levels, would that ultimately lead to deflation?

BTW, nice to know there are other realists less high on the fumes of central bank disseminated opiates ;)