Credit Writedowns - Latest Comments

Re: The Germans will not bailout Greece

egghat — Tue, 09 Feb 2010 13:03:09 -0000

Define "Bailout" ;-)

If the Germans (or all members of the eurozone) guarantee the greek bonds that is a bailout IMHO.

I'd even do an arbitrage deal with greek bonds. Get some money (Bund) at 3% and buy greek bonds at 6%.

(In fact that's the kind of deal the greek banks have been doing for quite a while now: they lend their money at the ecb at 1% and buy greek bonds that yield 6% (well they did this a bit too early, but even at 3 oder 4% this was quite a good deal ...))

Re: The Germans will not bailout Greece

cs — Tue, 09 Feb 2010 13:02:11 -0000

Edward, your post came 20 minutes too early. :)

http://www.calculatedriskblog.com/2010/02/repor...

They'll probably try to disguise it, but I'm sure most of us know that Germany and France are the pillars supporting this bailout.

Re: The Germans will not bailout Greece

daniel — Tue, 09 Feb 2010 12:43:01 -0000

hopefully. They've already managed to crash the german bunds. How sad...

Didn't really sound like a bailout. Germans aren't very happy about that. (at least me and the few who commented on wallstreet-online.de)

http://www.spiegel.de/international/world/0,151...

but that's not all

http://www.spiegel.de/politik/deutschland/0,151...

a happy day for german taxpayers

Re: The Germans will not bailout Greece

enh124 — Tue, 09 Feb 2010 12:37:17 -0000

Some aid is coming to the Greeks. That much I believe. The question is how much and in what form. A 'bailout'? Don't you think that's unlikely?

Re: The Germans will not bailout Greece

egghat — Tue, 09 Feb 2010 12:22:40 -0000

I bet they (in my case we) will save Greece ...

http://www.ftd.de/politik/europa/:rettung-fuer-...

Sadly there is (at least for now) no specific info about *how* this help will look like. My guess is a Euro-bond that is guaranteed by all nations in the Euro-zone that should bring back Greece's yield to normal levels.
Greets from Germany.

Re: More from Chanos on the Chinese property bubble

hbl — Tue, 09 Feb 2010 12:05:38 -0000

Bloomberg says "Chinese banks issued a record 9.6 trillion yuan ($1.4 trillion) of new loans last year". With a total GDP of around $4.33 trillion one year prior (2008), that credit-driven addition to aggregate demand is equivalent to about 1/3 of GDP! (BIG!) The onus is certainly on the China bulls to explain either how that can be sustained indefinitely or what happens as the credit-driven boost to both asset demand and consumption/investment demand shrinks (let's not even consider it going into reverse via debt reduction like Japan's did!)... (I haven't actually watched any of these videos so maybe someone does tackle it?)

Re: Links: 2010-02-08 – currency speculators, Canadian bubbles, and more

LavrentiBeria — Tue, 09 Feb 2010 06:28:12 -0000

Now have I gone and ruffled your terribly fragile libertarian sensibilities, son. I'm told it gets better when you grow out of adolescence.

OK, little fella, you invited this question. Precisely what "basics" don't I know about my "adversary"? You made the accusation, big mouth, where's the substance? Do you have the courage to be specific? I'd very much doubt it. Why you don't even have the guts to register here. Then, again, maybe you're not old enough to register.

Re: The European problem

Ger — Tue, 09 Feb 2010 06:01:18 -0000

"There is an insufficient movement of private capital and people as an automatic stabilizer. Translation: European people and money stay put, American money and people do not. In recession, you want movement because it evens out the rough spots."

Not sure about capital, but people certainly move, at the height of the boom more than 10% of the population of Ireland was from another EU country. As the economy has deflated those economic migrants have left rapidly for greener pastures. This has been a mixed blessing, lower social welfare payments, rapidly falling rents for residential landlords.
Mass migration has devastating social effects, from a purely economic point of view it might be efficient, but visit the west of Ireland and you will readily see its negative social effects.

Re: Links: 2010-02-08 – currency speculators, Canadian bubbles, and more

i.knoknot — Tue, 09 Feb 2010 01:57:28 -0000

you call beck a republican?
you're clearly a 'second-hand' opponent. you don't even know the basics of your adversary(s). just what you've heard your friends and MSM say. we're counting on your lazy ignorance. i'm sure you know better than the rest of us.
enjoy your bubble.

Re: Canadian housing bubble

mauerback — Mon, 08 Feb 2010 22:59:19 -0000

In a message dated 2/8/2010 19:03:08 Mountain Standard Time,
writes:

Almost all new residential real estate lending in Canada since 2007 has
been backed through the government owned/backed CMHC. This is a problem for
the govt more than the banks. Also Value Added Taxes are being increased in
several provinces come July 1st increasing home purchases artificially
before taxes go up.

Why is it a problem for the Canadian government? The government doesn't
have a solvency problem. It's wonderful that most Canadian mortgages are
held in the hands of a stable Crown Corporation, which mitigates the risk of
the sector being raped and vandalised by a bunch of greedy, blood-sucking
investment bankers (although we came close in Canada, thanks to the Harper
government).

Re: Canadian housing bubble

Joel — Mon, 08 Feb 2010 22:48:31 -0000

Glad that this is starting to make headlines. Pockets of Canada are definitely in a bubble (Vancouver, Toronto). Vancouver has the most expensive houses in the world at a ridiculous 9.3X average income (http://www.demographia.com/dhi.pdf). Australia is even more out of control. Eleven of the top 14 most expensive are in Australia.

I grew up in Melbourne and now call Vancouver home and have watched both of these bubbles develop. If you read the news in these locations, you see the bullish headlines that were common in the States in 04/05. If anything, shrugging off the global financial crisis has given people more confidence that prices can only go up. It will end badly, the only question is when.

http://www.smh.com.au/business/property/house-p...
http://www.ctv.ca/generic/generated/static/busi...

Re: Canadian housing bubble

Tim — Mon, 08 Feb 2010 21:03:06 -0000

Almost all new residential real estate lending in Canada since 2007 has been backed through the government owned/backed CMHC. This is a problem for the govt more than the banks. Also Value Added Taxes are being increased in several provinces come July 1st increasing home purchases artificially before taxes go up.

Re: Links: 2010-02-08 – currency speculators, Canadian bubbles, and more

LavrentiBeria — Mon, 08 Feb 2010 20:56:22 -0000

Reading the piece on Palin's recent political tour, I was drawn to the second item on the webpage dealing with her delivering the keynote address to the Tea Party National Convention in Nashville last weekend. Convinced ever since their raucaus appearances at the health care Town Halls last year that these clowns, their libertarian pretentions notwithstanding, were really nothing more than a kind of Sturmabteilung for the Republican National Committee, I've watched as they've increasingly and consciously allowed themselves to be identified with various Republican politicians and spokespersons, to wit: Dick Armey, Glenn Beck and now Sarah Palin. Whatever credibility these latter day brown shirts once enjoyed as "anti-system populists" has been soiled forever by this identification with Palin, her support in 2007 for the bailouts and her fascist warmongering. A dead on article by the Nashville Post's, A.C. Kleinheider, and an in-depth analysis today by Glenn Greenwald at Solon place the obviously compromised status of the Tea Parties in perspective:

http://politics.nashvillepost.com/2010/02/07/th...

http://www.salon.com/news/opinion/glenn_greenwa...

Were an authentic people's moment ever to come about in this country, look for the Tea Party contingent to be right there with the regime's police, beating up the strikers and demonstrators.

Re: Double Dip Recession and the Obama 2011 Budget

Vangel — Mon, 08 Feb 2010 17:11:57 -0000

There is nothing wrong with free market capitalism. What history has shown is that the crony capitalism cannot work because governments transfer wealth from savers and workers to their politically connected supporters.

Re: Double Dip Recession and the Obama 2011 Budget

Vangel — Mon, 08 Feb 2010 17:10:32 -0000

My claims are logical and defensible. The Keynesian approach has been discredited by real world observations. The planned economy approach that you advocate has always been a failure and you have yet to provide evidence or a logical argument that it is likely to be different this time. You even got the facts wrong when you claimed that Hoover was a free market advocate who did not intervene in the markets and failed to mention that FDR's intervention did not cause the economy to recover but made a contraction into a Great Depression. Yet, you advocate doing the same thing as Hoover/FDR and rejecting the proven approach that caused a true recovery to take place.

Re: Double Dip Recession and the Obama 2011 Budget

Vangel — Mon, 08 Feb 2010 17:05:54 -0000

I responded to what you said in the interview.

The BBC is using the typical pro-tax line and you seem to agree with it. You claim that having the tax cuts expire will help cut the deficit. I see it as a catalyst that destroys jobs and makes things worse as government becomes a bigger player and pushes out private deployment of funds.

You are also questioning the need to cut the deficits because you fear the very contraction that is actually necessary before a true recovery can take hold. You claim that Obama should not care about the excessive spending because that creates a problem for the economy going forward. I claim that there is too much malinvestment that has to be liquidated so using more borrowed funds in order to keep malinvestments from being liquidated is a not a good idea.

I see you trying to have it both ways. In some postings you make it clear that stimulus spending will lead to disaster because politicians will respond to political pressures and use the funds to prop up players that should be allowed to go under. But in other postings and interviews you claim that the Keynesians are right and that we need government spending to avoid a recession. You fail to point out what you seem to understand quite well in the other postings; that a recession is necessary to cleanse the system and allow a true recovery to take place.

Re: Moving away from stimulus happy talk to focus on malinvestment

Vangel — Mon, 08 Feb 2010 16:39:25 -0000

This is much better. The pro-stimulus position should be abandoned in favour of one that is moral, prudent, and defensible.

Re: Moving away from stimulus happy talk to focus on malinvestment

Vangel — Mon, 08 Feb 2010 16:37:50 -0000

-Fed money for states, so that states won't have to lay off workers

Why should taxpayers be on the hook for the inflated salaries of unnecessary state employees? If you look at the data you seem many people being able to retire from state payrolls at full pensions after only 20-25 years on the job. Those people could not get such high compensation in the private sector, which is where true earnings and taxes come from. For most states the best solution is dumping overpriced employees from payrolls and renegotiating retirement liabilities.

-Payroll tax holiday (would help employers as well as employees)

This makes a lot of sense. Cut taxes on employment and you would see more economic activity.

-Public jobs for environmental management (worked in Great Depression to give people honest work and do a lot of good public works many of which last until today)

This is a net negative. Making goods and services more expensive for consumers is not a good thing. If environmental projects were economic without subsidies, the private sector would fund them. If not they should not be funded.

Re: Murray Hill Incorporated is running for Congress

Vangel — Mon, 08 Feb 2010 15:02:57 -0000

Personally, I don't have enough information about legal precedent to make a determination one way or the other. So I am fairly ambivalent about the outcome. However, if the use of money is curtailed in any way in the political process, it is bound to curtail the speech that goes along with that. So free speech IS an issue here.

The precedent should be the Constitution. It makes it clear that political speech is to be protected from the government and as such the Supreme Court made a good decision.

What the US needs is to have the court go back into previous rulings and get overturn those that have allowed the federal government to take power that was never delegated to it and belongs to the states and the people. The entire line of reasoning that goes with the Interstate Commerce Clause needs to be reviewed once again and most of the rulings need to be overturned. The clause only allows the federal government the power to regulate commerce between the states, which was taken to mean that it had the power to ensure than no tariff barriers existed between states. A series of rulings have made that into a joke and have allowed the government to regulate almost everything. Unless Congress is careful the sates will be making the nullification arguments once again.

Re: Chandler: Policy makers are repeating the mistakes of the 1930s

Vangel — Mon, 08 Feb 2010 14:47:01 -0000

Marshall:

Cut the budget deficit, get government out of the way, it all sounds so easy.

I did not say that it is 'easy.' I merely point out that it is necessary if a true recovery is to be allowed to happen with the least amount of damage. I can't see how it is better to tax productive individuals so that we can subsidize inefficient businesses to prevent them from going under. Why do we use tax revenues to pay off the losses of reckless bankers who refused to evaluate risk properly? How do they ever learn if we keep bailing them out time after time?

Marshall:

So if the political preference is for the government to deficit spend less, what other sector is ready and willing to reduce its net saving position?

Who are you to decide that someone should reduce his/her net savings position? And why exactly is borrowing and printing money preferable to the market solution?

Marshall:

The reduction in fiscal deficits cannot occur without an offsetting reduction in domestic private or foreign net saving (the latter being the inverse of the trade deficit). If the answer is no other sector is willing or able to reduce its net saving, then income growth in the economy will have to adjust downward. This is the type of coherent analysis that a tautology, an accounting identity, can reveal.

Deficits can be eliminated by defaulting. If there is no money to pay back the debts the solution is to stop spending, not to pretend that there is no problem and to keep doing what created the problem in the first place.

Marshall:

Minsky had a similar analysis regarding the post-war period. Private balance sheets were simplified and deleveraged in the course of WWII, and private net saving was built up. Minsky concluded that is why you got a unusual period of financial tranquility into the late '60s, citing in particular the large share of bank assets made up of default free paper - Treasury debt - at the end of WWII. The problem was a) economists took this period of financial tranquility as the new normal, propagating the efficient market hypothesis and other rationale's for financial deregulation, and b) the private sector, including the financial sector releveraged, and liquidity mismatches became more prevalent in the latter as they came to rely on short term liabilities for positioning assets. The reality is that from Reagan on, serial asset bubbles were used (or at least tolerated by policy makers) in order to prevent the private sector (especially the household sector) multiplier from decaying as it otherwise would. Alongside this was the tendency of the nonfinancial sector to either reinvest profits abroad, or engage in financial engineering, all of which reduced the competitiveness of US productive capacity and hollowed the goods producing side of the labor market out.

I have never been much of a fan of Minsky. His, Financial Instability Hypothesis, is somewhat of a joke because he blames capitalism for underestimating risk during periods of prosperity without looking at the role of the central bank interventions that mispresented the time preference of savers.

The way I see it people like Minsky miss the obvious; as a group, the bankers did not make very many errors even though they engaged in activities that had to end badly for the institutions for which they worked. They simply responded to the incentive structure and did what they must to get as big of a piece of the pie for themselves as they could. While they may have ruined the institutions that they worked for most of them earned much more than they would have had they seen reality as it was and acted prudently. As long as the incentives are put in place by the manipulators the smart people who work in Wall Street will take full advantage of them, even if they take the entire system down. There is no such problem in a market system because without the interventions the incentives are very different and create negative feedbacks before things can get out of hand.

I am actually glad that brought up the post WWII period. Most of the Keynesians were predicting another depression as government spending collapsed and demand for war supplies dried up. But they were wrong. The reduction of spending and the regime change that made it attractive to invest once again caused an investment boom that brought prosperity. Once again, a reduction of government spending and debt was good for the general economy.

Marshall: A similar point can be made for the 1921 deflation episode, which Austrian School adherents often cite as an example of a successful deflation, short and sharp. WWI changed the debt structure, so the mix of liabilities was tipped more toward government default free debt than private debt, and the private sector had cash net savings from rationing plus persistent government deficit spending. They tend to leave this part of the story out, but it is a crucial element in financial stability.

This is a very nice narrative but it does not change the argument. There was a severe contraction during the 1920s as bad investments were liquidated and debt was cleansed from the system. There is absolutely no reason why we cannot go through the same process sooner rather than later. If debt cannot be repaid then stop accumulating more of it and face reality as Harding did.

From what I see, if the Minsky narrative is the best you could do, you do not have much of an argument. Yours is a logically bankrupt argument that fails the smell test and is contradicted by history. Unless you have something better you need to go back to the drawing board and rethink your bias.

Re: More support for the asset-based economy status quo from Sir Alan Greenspan

enh124 — Mon, 08 Feb 2010 14:25:15 -0000

I have shifted from the stimulus talk to focus on malinvestment, Vangel: http://bit.ly/8Qpjqs

Re: More support for the asset-based economy status quo from Sir Alan Greenspan

Vangel — Mon, 08 Feb 2010 13:57:39 -0000

I agree. But the way I read you, you are aware that what Greenspan is proposing is to keep the 'fake economy' going. If you can see that what Greenspan is proposing is futile why are you pushing that Obama do the same thing by using stimulus activities to fund uneconomic projects that do not create permanent jobs and allow a real recovery to take place?

From what I can tell, your criticism of Greenspan is inconsistent with your position on government spending and meddling in the economy.

Re: A more in-depth description of how elites maintain status quo ante

Sackerson — Mon, 08 Feb 2010 13:29:23 -0000

You forgot sumptuary laws; and noblesse oblige, manifested in the administration of justice, poor relief, military service etc.

Re: Unemployment number decline is all about seasonal adjustments

enh124 — Mon, 08 Feb 2010 12:43:21 -0000

A reader of Mish's ran the numbers on household survey seasonal adjustments. It shows this last month is an outlier as I indicated. Here they are:

http://globaleconomicanalysis.blogspot.com/2010...

Re: More support for the asset-based economy status quo from Sir Alan Greenspan

enh124 — Mon, 08 Feb 2010 11:42:49 -0000

Greenspan is not saying anything 'materially' different. He just focuses on different agents of re-creating the status quo ante.