Apologies for thin links, need to be on a very early flight.
Scientist: World’s helium being squandered UPI (hat time reader John M)
Double strike ‘killed dinosaurs‘ BBC
Good Bernanke commentary. Mr. Market wants to believe:
El-Erian: How to read Bernanke’s speech FT Alphaville
Bernanke is neutral, with dovish tinges Gavyn Davies
Really What Bernanke Said Is That He Doesn’t Have What It Takes To Fix The Economy Joe Weisenthal
Driving Me Crazy Tim Duy
Widespread Fear Freezes Housing Market Joe Nocera, New York Times
GDP revised down Jim Hamilton, Econbrowser
What Banks Can Learn from VCs Paul Kedrosky
Antidote du jour:
When are we going to have pictures of dugongs grazing underwater?
There once was a boy who lived in a house by a giant dam.
One day, the house caught fire.
The little boy, thinking himself an expert, took out his top of the line bazooka called QE and started to fire at the dam, hoping to use the water behind the dam to put out the fire.
He kept on firing his state of the art QE bazooka, as the fire roared.
Can anyone guess what might happen next?
His house burned down first, then the dam broke and flooded the entire town.
The town’s taxpayers had to fund reconstruction of the dam and the house.
The boy spent the summer at his uncle’s farm across the state — hunting, fishing and building fires in the woods — before he went off to his elite private school for another year of grooming for an eventual life in some high public office or on Wall Street.
Isn’t that it?
Regarding Nocera’s article on buyer anxiety in the housing market, what we got in response to the financial crisis is the Japan solution; it’s that simple. In Japan, real estate generally and housing especially soared to riduciulous bubble heights in the late 80s. But consumers say the chance of a lifetime plus the apparent reality that they would be permanently locked our of real property ownership if they didn’t buy; so they bought at ridiculous prices which they couldn’t rationally afford. *Crash* Now home or small property owners are debt slaves, saddle with payments on places their income doesn’t support, in permanently depressed employment conditions (for Japan). The entailment of such cash flow as they have to debt grinds down the anyway structurally weak consumer demand there, leading to deflationary pressure on, you guessed it, housing prices. Despite that, government intervention/outright lying props up prices so there is insufficient price correction—but the certainty of gradual decline in real asset values over decades long time frames. Who would want to buy an over-priced but sure to decline asset in a market severely illiquid for the same? Not even fools.
This is the place we have arrived at in America, having ridiculed the Japanese for their ineptitude during our own ride on the Bubble Tea Express. But there is a further similarity, and the one that matters most: very few of the oligarchical perps in Japan payed the price of failure. They kept their top-floor offices, and their incomes, and the fabricated support for fictitious asset values entailed them to stay rich and on top. The government response in Japan, you see, was of the rich, for the rich, and by those in service to the rich. For THEM, it was a win: they stayed rich, even in the middle of society is starved by debt and deflation around the edges. And that is what we have now, in America; and for the near future; and evidently for the next twenty to thirty years until we decide to have something else. A ‘recovery’ for the 5% at the expense of absolutely everyone else in society. While our two-headed one party system does everything necessary to keep it that way. High unemployment? THEY DON’T CARE. Yeah, one head of the one party system might lose a little to the other head, but then in four years it’ll just swing back. What won’t change is the policy of recovery of the rich, charged to the rest.
But nobody’s going to sign on the line to buy declining assets in that environment unless they really need a place to live and have rock-solid job security. Housing has a long way to come down to re-engage with reality, but the resources of a large nation’s institutions can maintain delusion for durations on the order of two and a half generations, judging by the 20th century anyway. This problem won’t ‘fix itself,’ because the fix is in regarding the system. We’ll have to break the system to fix it. Nobody’s in any great hurry to get on with that, either.
The worst thing is that we are IMITATING the Japanese.
We used to laugh at the Japanese for imitating us.
I agree wholeheartedly, but would add to your assertion that the top %5 are in recovery by saying that we really are propping up the banking system so the government doesn’t feel the need to either 1) Go to congress to bail them out again, or 2) Dismember them and nationalize the banking system (followed by re-privatization). Number #2 should have been done in 2008 and we might just now be seeing some sustainable GDP growth and rising employment. People waiting around for years for the RRE price bottom will just aggravate deflation and pull us into its maw all the faster.
RK- “…Housing has a long way to come down to re-engage with reality…”
Richard, I agree with pretty much everything you said. Especially where you said “…The government response in Japan, you see, was of the rich, for the rich, and by those in service to the rich. For THEM, it was a win: they stayed rich, even in the middle of society is starved by debt and deflation around the edges. And that is what we have now, in America…”
The only thing I question is the degree to which housing became inflated in the US vs. what happened in Japan by the end of the late 1980’s.
As I recall, the incestuous cross-purchasing of company stocks by members of the infamous Keiretsu groups, inflated the Nikkei index way beyond anything we’ve experienced in the states(e.g. as I further recall, by the late eighties -seven of the ten largest banks in the world were Japanese because of the sky-high valuations). This is also quite evident by the fact their index today, 20 years later, is still only about 25% of what it was back then.
Some would say it was the funny money created by the stock market that beefed up the real estate market valuations. I don’t have access to information right now but I think property values in Tokyo during that period had also reached the same ridiculous unssustainable levels as did their stock market.
So my position(hope) is that while we’re in bad shape now, our stock market and real estate valuation levels here in the US never reached anywhere close to the nose-bleeding levels of the Japanese markets.
Personal anecdote- our home built in a nice middle class area in the far north Philly suburbs is now(17 years later) only a little more than double what we paid to have it built. Not much inflation here. It seems this RE inflation reality is more prevalent nationwide than what occurred in CA, FL, AZ, Vegas, et al.
My sense is that you may be aware of this also. So what is it I don’t see?
“About 80 per cent of the world’s reserves are in the U.S. Southwest at the U.S. National Helium Reserve in Amarillo, Texas, but a recently passed law has ruled the reserve must be sold off by 2015 regardless of market price, Britain’s Independent said.”
WTF came up with that incredibly stupid idea??
Bureau of weights and measures regs hidden in new men’s cosmetics law passed by congress last year…sponsored by Barney Franklin and friends. Sometimes things get through congress that are never discovered. Thanks be that this helium thingy was brought to light quickly! How could the economy recover without party baloons?
Imagine Bernanke clutching one of them helium balloons, delivering his Humphrey-Hawkins testimony in high-pitched ‘Alvin and the Chipmunks’ fashion, in between hits off the balloon.
No reason that Dadaist public policy shouldn’t be delivered in suitably entertaining fashion, as rum-soaked solons nip at their flasks and bored pigeons murmur on the guano-covered windowsills.
RE: ‘Really What Bernanke Said Is That He Doesn’t Have What It Takes To Fix The Economy’…
If Bernanke had total control of fiscal as well as his current control of Fed (monetary) policy he still would not have what it takes to ‘fix’ the economy…and, Mr Market does not ‘want to believe’ anything. Mr Market will believe what it will, when it has to…’Mr Market’ is the collective response of people to greed and/or fear.
The US Economy today has more in common to the defunct USSR than the economy of Japan.
All that Bernanke’s speech accomplished is to reinforce the belief that the Fed does not know what to do. Investors, businesses, and many US Citizens have lost faith that the Fed and Gov can fix anything. Why is anyone surprised?
If one had a relationship with another that went awry many, many years ago, would one reasonably expect that they could repair the damage that had been done to the relationship those many years ago and would live happily ever after?
Neither the Fed nor the Gov have a ‘way back time machine’ that would allow a do over of policy mistakes. We are where we are through a succession of policy errors by the Fed and Gov that began with a bust of a credit bubble in 1929 which led to ever increasing intervention into markets by the Fed and Gov. The growth of the Federal Government and government at all levels is unsustainable. What is not sustainable will fail.
The best outcome the Fed can hope for is a repeat of what has happened in Japan for the last 20 years. The worst outcome could be world economic system collapse.
In any case the world will not end. Capitalism will go on…and after a few years have passed and with any luck the outcome will be a return to real free market capitalism with much smaller governments and no Fed. Capitalism is a system that requires booms and busts and no amount of intervention can induce a permanent ‘great moderation’, as has been claimed for the past thirty years. Mr Market will not be permanently controlled any more than the forces of nature can be held in check.
I loved you…why did you screw around on me…I’ll take you back…your the best thing that happened too me.
Too late by decades Skippy! :) I have found another that will put up with me…lol
Limited physical pain is easier to bear than unlimited emotional agony, imo. Maybe that is true of economic distress as well? Perhaps what makes TPTB successful in their endeavors is the ability to handle a lot of mental and emotional stress?…helped along with liberal use of alchol and other mind altering substances?…since brains and insight don’t seem to be their strong suits.
Would you like to share your opinion of the US Treasury markets now?… My guess is that the buyers (excluding stealth buying by Fed/Gov) are pricing a long Japan like experience.
Jackson Hole…is that some quasi scientific term for singularity?
It is ironic, in the Dickensian metaphorical word play sort of way, that all these bozos are meeting at Jackson Hole — given President Andrew Jackson’s view of the Second Bank of the United States.
Jackson’s Hole = the drain down which the public’s wealth gets siphoned by moneyed interests allied with and supported by the the nation’s central bank.
Jackson Hole? Isn’t that near the Mega Volcano in Yellowstone NP that is overdue for an eruption?
Bloombust Headline News…
“200 Feet Of Ash Fall On Jackson Hole: Economy Recovers”
The technical term is super-volcano, like another hidden under a lake in Toba, Sumartra.
Right! Super-Volcano! Toba…the big one that supposedly wiped out most of the human population on earth about 70,000 years ago. It’s great that humans were still riding dinosaurs then or we might have been totally wiped out, eh?
Toba catastrophe theory Wiki… http://en.wikipedia.org/wiki/Toba_catastrophe_theory
What Bernanke really said:
We’ll be buying more crummy ‘assets’ before the end of this quarter at inflated prices, so all you TBTF’s should buy now to make your year end P&L numbers.
The timidity of Bernanke’s speech is matched by the timidity of the commentaries in the links above. What, these guys are afraid of offending Gentle Ben (the bearded teddy bear), and losing their zero-percent credit lines?
So far, only Bates (above) has blurted out that the emperor has no clothes: ‘If Bernanke had total control of fiscal as well as his current control of Fed (monetary) policy he still would not have what it takes to ‘fix’ the economy. The US Economy today has more in common to the defunct USSR than the economy of Japan.’
So blue, so true. And the third lever which could ease financial conditions — the external value of the dollar — is Treasury’s bailiwick.
So Bernanke is irrelevant. And, facing a more prickly Congress full of radicalized freshmen next year, he may find himself unemployed as well.
Actually, I tried to email him yesterday, using guesses such as ‘bsbernanke’ and ‘bbernanke’ (at) federalreserve.gov. Both bounced back with the failure message ‘User unknown in local recipient table.’ In fact, I can’t even find the format of staffer email addresses in economic papers, although I notice the regional banks use ‘frb.org’ instead of ‘dot gov.’
Reminds me of visiting the DMV yesterday, where a posted notice stated ‘We don’t accept incoming faxes anymore.’ Too many customers bothering us, so just pull the plug!
Does anyone know how to contact Bernanke? I promise, I’ll be constructive — no jeering. Lord knows, I’m only tryin’ to help …
Re Widespread fear freezes housing market:
I’ve probably said enough about this here but tell me if this is the smart way for the bank to handle an ‘asset’ …
I had a house with a mortgage, bought in ’91… great credit, never missed a payment, always on time. My income is going lower during period of solo research (which is finally going to bear some fruit I think) and I’m in mid-50’s… so I build legal granny-unit (largely with my own hands)in 2005… move in and rent out house… since it could be difficult to market.
(The house has major structural defects… known to broker and former owner as evidenced by disclosures made on a previous failed escrow… but unknown to me since these disclosures were ‘mysteriously’ absent from their disclosures for my escrow… and became the subject of protracted legal action for intentional fraud… the settlement paid for re-grading to halt future flooding and legal expenses but not enough to fix the major issues…)
Anyway… back to the story…
So it goes fine for two years. Then tenant gets transferred to Florida. No problemo… get new tenants! (while there are serious structural issues… its aesthetically pleasing and renters don’t necessarily need to worry about those structural issues unless they involve safety… and these don’t… so its a very nice rental… great schools, neighborhood, etc…)
New tenants fine for about two-years… then tenant has motorcycle accident, loses job, no insurance, can’t pay rent. This is Aug of ’08. Tenants finally move owing $8,000+ in back rent… (rent was $2,450… mort pmt $2,100)
No problem. I have $65,000 untapped Heloc to cover payments, expenses, etc… while search for new tenants.
Oops… Heloc cut in August due to R.E. slump… Now cash flow is a sudden big problem… (the stupid thing is I could’ve taken the whole $65,000 out in July and put it under my mattress and maybe have been OK right now!)
Anyway, I have to miss two payments…
No Fed or Treasury to get me over the ‘liquidity crisis’…
Within a few weeks I get a little cash from acquaintance desperately needing a place to live for her and her daughter and willing to help with gardening, pool, repairs, etc for place at heavily discounted cost and no deposits, etc… while search for full tenants and/or roommates for acquaintance so as to make full rent…
SO… at this point I’m unable to catch-up with both payments at once but could get to only one-month behind… bank won’t accept partial payment… its all or nothing.
And house gets Notice of Default. Responsible tenants looking for some stability are naturally nervous to be renting house in default so that’s a big problem…
New tenants again impossible to find with house into foreclosure… though I finally get partial tenancy downstairs which pays for utilities, cable… etc and basic expenses ($850)… and I allow acquaintance and her daughter to stay even though she is now completely broke… since what’s the point of kicking them out to homelessness… and the child, now with some stability is blossoming in good school environment.
Since bank won’t accept partial catch-up and can’t get ‘full-paying’ tenants in this situation… I’d rather at least have people using space, taking care of house… and a child having a chance for a better life… (I was not looking to fool some renter to pay full rent so I could live high on the hog… but searched for short-sale so could become just a renter… apparently this is also frowned on).
To make a much longer story short… house has gone back to the bank where it will undoubtedly sit for a long time generating nothing.
Bottom line is… they want it… they got it…
But if they could have had some slight forbearance I could’ve gotten new tenants and payments could have continued. Of course, there was never anyone to explain this to at the bank…
Have I made a lot of errors? You bet! My ‘cushions’ (the Heloc and tenants) turned out to not be the cushions I thought they were. My own fault. And my ‘savings’ were non-existent. Again… my fault… but I HAD drastically lowered my overhead which seemed my best way to find some security.
Bank can have empty, damaged house in glutted market generating nothing… and neighborhood (where I think I’m well though of) will have another empty house.
If I could be a little analytical here… this is precisely one of the problems with TBTF…
They lack ‘granularity of decision’…
This is a problem the heads of banks and Wall Street did NOT face when they all went crying to the Fed and Treasury…
They GOT that ‘granularity of decision’; that creative thinking…
And they wonder why people are angry…
While they got bailed out… they’ve also become judge and jury for millions of families. Every one with an individual story. I’m sure there are greedy exploiters on all sides.
I don’t want any damn bailout. Banks should stop extending and pretending. And govt should not be trying to prop up asset prices.
With realism a good short-sale could have been done… (much effort was made and agreements were close)… rental preserved and cash-flow to bank continued…
Just let me live in the granny unit I built at a fair rent!
I intend to fight eviction on multiple sound fronts. (Including some rather significant issues in the short-sale process which I won’t go into here but may be affecting a great number of negotiations.) I’m more than happy to pay suitable rent on my 500 sq ft unit. The funny thing is that the bank will honor leases if they exist… but former owner must GO!
Thanks World Savings… and then Wachovia… and now Wells Fargo!
Forget me… fine, I’m an idiot and undoubtedly a horrible business person… but it’s NOT in THEIR interest. It’s just NOT good thinking.
TBTF? Frankly, they can’t run their businesses in ways that benefit the nation, their counterparties… or even their shareholders. Every situation should be evaluated individually. Housing is a fundamental necessity of life and un-trained clerks in cubicles staring at screens asking irrelevant HAMP questions can’t fix-it. (“NO, I obviously don’t have the income to qualify for the narrow HAMP formula… that’s why I build granny-unit… but I COULD have renters to pay your damn mortgage!)
I understand its a good year for bonuses.
P.S. I don’t want or expect sympathy. Victimhood sucks. Not my style. Frankly, I’d be more worried about a nation incapable of recognizing and dealing with institutions having so little sense. And I’m just egotistical enough to believe that at some point soon these banks will want my business.
There are BIG problems in our scaled decision systems.
On Creating Communities (Part 1)
Decision Technologies: Currencies and the Social Contract
“Every situation should be evaluated individually.”
“…granularity of decision making…”
Interesting. One of the things that I think would help greatly would be to allow cramdowns in bankruptcy for mortgages. Change the laws and make it *easier* to go through bankrupty. A bankruptcy judge is about as granular as you are going to get!
Y: Check this: http://www.propublica.org/special/a-banks-best-customer-its-own-cdos Happy Trails. B.
Carmen Renhart’s paper and comments from Jackson Hole were also noteworthy. Reinhart is the co-author of “This Time is Different,” a former IMF economist, predictor of the Tequila Crises, the Asian Flu, and the Housing Crises, and along with Rogoff, has studied something like 1500 years of crises.
Historically, unemployment has stayed high for 7 years, and growth 1% below normal. She recommends cutting spending and increasing taxes to avoid a debt default (high inflation is another form of default), which is the next wave in the crises.
It’s too bad no one asked her about China or Japan’s looming disasters.
Tom Crowl has a story that seem more common these days. It’s intertesting to me that today we’re in a crisis that after 2 yrs so-called experts said we would be out of by now and yet here we are still.
Think about, if 2 years ago one would of said that housing is going to get so bad that interest rates would go to 4.5% and continuing to drop to record lows with property values down about 50% in some areas and still in July home sales down 27%, the lowest sales number in 15 yrs. experts would have laughed that person to scorn and yet here we are.
Empowering the Commons: The Dedicated Account (Part I)
How much you wanna bet I don’t get this damn thing built! And guess where the accounts WON’T be…
Maybe I’m crazy… but sanity isn’t working so gotta try something.
Some of the quotes in the Nocera article drive me crazy.
“Yet, absurdly, government rules have made it exceedingly difficult to make loans to investors who want to buy up rental properties.”
Government rules? What rules? You mean the “rules” in place that limit the *subsidy* given the buyer? It’s amazing what you can do with language. The government sets up a subsidy, and now that it feels it makes sense to rein in that subsidy just a tiny fraction, it is “absurdly” putting in “rules” that make it “exceedingly difficult” to buy. It’s still a freaking *subsidy*! Just not as generous as before. No charitable deed goes unpunished eventually.
Obviously, it’s not “exceedingly difficult” to buy anything. It just takes a price that the seller and buyer are is willing to accept. If there’s no clearing price, there’s no market. Why is this so terrible? Eventually, someone will budge (the seller in this market), and the transaction will happen.
I’ve said it before, and I’ll say it again many times, the sense of entitlement in this world to be loaned money at any time at a good rate (and the ability to get deferrals when the loan can’t get paid back on time) is so entrenched and pervasive (almost ubiquitous) that I dare say I can’t see it subsiding in my lifetime. Its existence is no less ludicrous, however, just because of its persistence.
So Anonymous, I share your concern with many phasings, framings, and assertions by Nocera in that piece. I wasn’t in a mood to delve into that in my earlier comment elicited by the article, but it’s not a good piece in its details, no. He repeatedly uses the phrase ‘perfect storm,’ for example for contextual conditions in the asset bubble which were _nothing_ of the sort, i.e. an extraordinary unlikely, unlucky, and impossible to predict bad outcomes. The bubble was an obvious bubble in 2002 to anyone who’s studied such things, a gross bubble by 2006. There was nothing ‘perfect’ about this storm, it built steadily as all bubbles do and reach an end which was locked in several years before it blew out. It’s not just lame-assed journalism on Nocera’s part that he severely misuses a current catchphrase here, though; to me, anyway. His usage tends to exculpate many participants, many large financial institutions, and especially nearly all those in responsible positions of political or governmental power—most of whom remain—other than the select few he wishes to blame.
The issues Nocera raises are important, so in that regard I’m glad he wrote the piece. His slant is not to be trusted in the least though: one must read it with their thinking cap on.
OH MY GOD. The Pygmy Hippos are the cutest thing I’ve seen this year… Am… Dying… of… Cute…. Can’t… hold.. on….. much…. longer……
FED CHIEF LINKED TO HELIUM SHORTAGE:
I really didn’t think Bernanke said anything new in Jackson Hole. Aside from saying that the Fed would not be reducing its balance sheet anytime soon, that was about it. Mostly, I think the Fed has shot all of its bolts but Bernanke is saying the Fed is still in the game. QE2? Well, it was enough to send the stock market up despite the downward revision in GDP. But QE1 really didn’t kick start recovery. It is hard to see how QE2 will. And while stocks were giddy, money is cheap now so I don’t even see this as pumping up the stock and commodities bubbles. As for the real economy, the Fed has got nothing, not that it ever made much of an effort in that direction anyway.
I’ve still got a job!
You unemployed suckers are fucked.