Peter Dorman has published a rough sketch of where the dismal science might start if it wanted to be something more than a dismal humanity with a minor in math.
Perhaps the simplest and most universal example will make this clear. Consider the standard supply-and-demand diagram. The professor draws this on the chalkboard, identifies the equilibrium point, and asks for questions. One student asks, are there really supply and demand curves? Where would you go to look for them? Ah, it’s not so easy, comes the reply. Yes, in principle these curves exist, but they are not directly observed in nature. You can do market research in which you ask a sample of consumers how much they would buy at various prices, and this could give you an estimate of the demand curve, but of course there would be a certain amount of error in the process. And the supply curve is even more difficult. We will see in another week that this is derived from the marginal cost schedule, but in practice firms often find this difficult to calculate with accuracy. And even worse, in another week after this we will find out that, if competition is not perfect and firms behave strategically in the market, there is no supply curve at all.
If the answer stops here, the students will be left wondering why they are studying such a useless theory. But we know there is another way the answer might proceed. The professor could say, the supply and demand curves are only for the purpose of organizing our thoughts; they are not “real” in the way you are asking for. But we can use them to identify two other things that are real, excess supply and excess demand. We can measure them directly in the form of unsold goods or consumers who are frustrated in their attempts to make a purchase. And not only can we measure these things, we can observe the actions that buyers and sellers take under conditions of surplus or shortage.
In this easiest of cases, it is already clear that mechanisms are more susceptible to empirical methods than models of endpoint (equilibrium) states. This observation applies with greater force as we move toward ever more-complex forms of equilibrium modelling. Fortunately, the antidote is beginning to emerge in such areas as labor market search theory and behavioral finance, which have brought concrete mechanisms back into the picture. As these fields develop, the more general models of their infancy give way to diverse findings across particular market segments, cultures and contexts. And that’s what we should expect: there is no general theory of fish either.
I don't know how successful he is at addressing my knee-jerk reaction that it would be impossible to detangle conclusions based on prior observation from their influence on future behavior. Maybe the irrationality of the cogs rescues the idea, though, and reduces the problem to something akin to feedback in climate models. Related, he suggests that:
there would be a much clearer distinction between the criteria governing scientific and policy work, insulating the former from some of the influence exerted by powerful economic interests and freeing the latter to adopt an ecumenical and risk-taking approach to tackling the world's problems.
I like this. We could demote the hoard of economists running around in the real world to "clinical economists", giving them the esteem of self-help manuals and insulating to some degree research from practice, or rather, clarifying that the latter should be derivative of the first.
:: posted by buermann @ 2008-10-06 22:48:29 CST |
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it works, but mere citizens have to actually pull the trigger:
One week ago:
DEAN BAKER: The worst case scenario is that we have an extremely scary day in which the markets freeze for a few hours. Then the Fed steps in and takes over the major banks. The system of payments continues to operate exactly as before, but the bank executives are out of their jobs and the bank shareholders have likely lost most of their money. In other words, the banks have a gun pointed to their heads and are threatening to pull the trigger unless we hand them $700 billion.
It's so crazy, it just might work. Yesterday:
AKRON, Ohio (AP) - Mortgage finance company Fannie Mae said it is forgiving the mortgage debt of a 90-year-old woman who shot herself in the chest as sheriff's deputies attempted to evict her.
Well there you go. The pro-lifers always said this day would come. We're now subsidizing attempted suicide.
Please file an official claim through your local congressional office before inflicting any trauma upon your person. If you are already bleeding to death we advise calling the constituent services hotline immediately.
Yee haw.
:: posted by buermann @ 2008-10-06 00:09:07 CST |
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heh:
Real estate takes you for a ride
:: posted by buermann @ 2008-10-04 16:49:03 CST |
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joe biden is the senate's foremost foreign policy expert due to selection bias:
[I]f we are to have a quick “settlement” based on Biden’s ideas about "700 years of conflict" and other similar guesswork about Iraqi history, then the region could very soon turn into a quagmire far worse than anything seen since 2003. It is in this perspective it is hard for an outsider to share the viewpoints of American intellectuals who talk of a big difference between Joe Biden and Sarah Palin when it comes to credibility on Iraq.
:: posted by buermann @ 2008-10-04 15:36:42 CST |
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we shouldn't confuse the bailout bill with legislation that actually does something about the root of the problem:
OBAMA: What I also think is important is that we tell our respective party leaders that extraneous issues or issues that threaten to cloud this thing with partisan politics needs to be left out of this particular piece of legislation.
I suppose the $110 billion bizarre assortment of random ass backfat clouded it with bipartisan politics. That was September 24th, by which time Democrats had already abandoned whatever window dressing pretense they ever had of assisting struggling home owners. For the record.
:: posted by buermann @ 2008-10-04 09:13:02 CST |
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another way to describe a new low:
At the end of a heavy petting conference on the bailout between Steny Hoyer (D-MD) and John Boehner (R-OH), they're walking off stage and Boehner, living up to the phonetic equivalent of his name, either tells us or asks us, "Markets up today". Can we get a photographer to go back to his office with him? I want to capture the expression on his face when he realizes his losses, and see if it's anything like mine when he passed this terrible bill.
:: posted by buermann @ 2008-10-03 13:43:27 CST |
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heil paulson! seig heil! seig heil! seig heil!:
Everybody give Hank Paulson a warm welcome as our new Maximum Leader.
:: posted by buermann @ 2008-10-03 10:39:54 CST |
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a critique of the vice presidential debate - or - I'm not going to bullshit you and pretend that I know what I'm talking about:
Credit default swaps were invented with collateralised debt obligations in 1995 by Blythe Masters, a 34-year Cambridge graduate [ed: mathematics, that which does no harm] who was then the head of JP Morgan’s Global Credit Derivatives group.
Masters' sales pitch was that by "bypassing barriers between different classes, maturities, rating categories, debt seniority levels and so on, credit derivatives are creating enormous opportunities to exploit and profit from associated discontinuities in the pricing of credit risk". That pitch was good enough, they sold well anyway, but I have no idea at all if the thing springing into my mind has any interrelationship with the thung that sprung it. Maybe the thought of purchasing insurance for money you create from nothing makes it safer for accounting to ignore and for you to create more money out of nothing?
But back to the topic at hand, I understand one General McClellan ordered a toxic blob from Main Street to attack Wall Street, and we must shore up their democratic government by invading the northwest neighborhoods with soccer and or hockey moms so we can build more stadium infrastructure and defeat freedom hatred for extra good. Also, look, nobody loves John McCain more than we do.
:: posted by buermann @ 2008-10-03 00:33:40 CST |
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how the senate lubes up:
By my math that's 349 pages of nonsensical pork to grease passage? $100 billion more this afternoon, who knows how much more by the time they vote. What does the fed borrowing $800 billion in the middle of a credit crisis do to credit, anyway? Maybe something good, maybe something bad.
:: posted by buermann @ 2008-10-01 17:30:01 CST |
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"The senators issued no details of their proposal.":
Aside some trivial SEC re-regulations regarding short-selling: It allows banks to value income-generating MBS on the income it generates rather than a fictitious market value it isn't trading at, which would help settle their capital balances. It increases FDIC deposit insurance to $250,000 which would prevent more bank runs like what happened to Washington Mutual. Most significantly, rather than buying bad debt securities from banks at inflated prices with little equity in return, at a cost of $700 billion dollars we don't have, the plan implements a "net worth certificate program" in which the FDIC would recapitalize banks by exchanging net worth certificates and promissory notes. I read that the same as "preferred shares for bonds" with less paperwork: presumably it allows banks to avoid failure due to falling debt-to-equity ratios, thus restoring confidence in interbank lending, without actually costing us anything. Well, except the half of the financial sector that needs to burn down anyway.
Since the mood of the day is to add to the cost of the Paulson-Dodd bailout by including further tax cuts - when you're talking about tossing another trillion dollars onto the firestorm of national debt this makes a lot of sense - DeFazio and his ilk probably ought to just offer the House GOP their 15% capital gains tax cut. The bailout would then only give some 200 billion to the wealthy, and probably not those in the financial sector: a half-trillion dollar "savings" with less moral hazard.
:: posted by buermann @ 2008-10-01 12:34:26 CST |
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hosed:
It's very frustrating watching Democrats stick to this very watered down version of Dodd's plan, which was just Paulson's plan with some reasonably punitive measures tacked onto it. A 3 page blueprint for a massive looting operation bloated under the heat of congressional scrutiny into a 110 page blueprint for a massive looting operation. May it die a thousands deaths on the morrow.
I can only guess that they couldn't find one economist craven enough - quite an impressive feat, if you think about it - to favor purchasing bad assets as a means to recapitalize banks. It's difficult to imagine another plausible explanation for why they failed to bring a single economist to the hill in the past week for input.
But today they appear to be paying some attention, for apparently the first time, to at least one. Maybe some others suggested just raising the FDIC deposit insurance cap, but James Galbraith is the only I've caught in the act.
update: Oh. Of course they'd go and just tack that onto their shitty, motherless bastard of a bill. Awesome. "In exchange for the $700 billion dollars we're giving to our friends for the fuck of it, we'll also include this $0 billion dollar measure that actually reduces systemic failure! How do you like us now, America!"
:: posted by buermann @ 2008-09-30 16:56:55 CST |
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nepal moaists quacking up:
The world's first Maoist Democracy, having abolished a backwards monarchy after years of bitter struggle, moves quickly to... appoint God?
The six year old deity was selected in part for having "a voice as soft and clear as a duck."
Ducks can be articulate draftees for national service
For less patronizing condescension regarding others' cultural artifacts, see the wikipedia entry. It is probably a positive sign if your maoists aren't suppressing expressions of religious sentiment.
:: posted by buermann @ 2008-09-29 21:21:31 CST |
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Wachovia collapsed because it bought Golden West, 72% of whose home loans were sold under their "Pick-A-Payment" terms, where borrowers were allowed to skip payments with no penalty:
recapitalization – via the use of public resources – can occur in a number of alternative ways: purchase of bad assets/loans; government injection of preferred shares; government injection of common shares; government purchase of subordinated debt; government issuance of government bonds to be placed on the banks’ balance sheet; government injection of cash; government credit lines extended to the banks; government assumption of government liabilities.
Only one of these alternatives has been considered in the past week, and in 42 past banking crises the purchase of bad assets were "the exception rather than the rule". The claim that this is the best way to help the financial system has "no factual basis or justification", "is a total rip-off", "a huge expense for the US taxpayer".
The draft's warrant provisions - and this was before the conference call in which the Treasury explained how they'd go out of their way to limit tax payer exposure to the upside - are "a cosmetic fig leaf", "vague and fuzzy". It is "a disgrace" and "a bailout of reckless bankers, lenders and investors" that "does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown", "socialism for the rich", "a scandal", a "Treasury scam".
I guess it wouldn't have been polite to just say that after a week of hyperventilated posturing, congress has delivered nothing more than an FTD Crap Basket.
:: posted by buermann @ 2008-09-29 01:10:19 CST |
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"We do not want to reward failure":
The Treasury held a conference call for finance sector insiders tonight so they had a leg up on the Treasury Department's plans on the bailout draft (important, since the Treasury is executing it, and the draft leaves much of the details up to the execution). You can download it via bittorrent, if you care to listen in on their 40 minute discussion.
This is simply scandalous. To have a group of interested parties get a privileged briefing by government officials on a matter of keen public interest flies in the face of what a democracy is supposed to be about. The proper method would either be a published FAQ on the Treasury website or a briefing with the media included.
The Treasury makes it very clear that the warrants they take on equity will not be punitive in any fashion. From the call:
It requires us to take warrants at the Secretary's discretion ... in the direct case [ed: a seizure of a failing institution] we will be very aggressive in taking warrants for the taxpayer benefit. ... Companies that sell over $100 million dollars into this fund must give warrants.
The warrants we can set at whatever level we want to set, it's not specified. We want to set that at a level so there is some upside for the taxpayers, but also encourages all firms to participate. This goes back to the spirit that
we don't want just failing institutions to participate but also healthy firms to participate. Having that discretion was very very important to us.
So healthy firms are encouraged to sidle up to the trough and take the taxpayer for $100 million with no downside for them and no upside for us.
Likewise, while the Treasury will be very aggressive about taking stock options on failing institutions, when healthy institutions come for their checks, the Treasury will set the price of the warrant at whatever level is high enough to keep the firm porking out. No downside for them, there, either.
The one substantive parameter of the agreement left in the sausage was watered down to gruel. All that's left to save our bacon is the pricing mechanism, but the price mechanism isn't specified. In the draft of the bill the section ironically titled "PREVENTING UNJUST ENRICHMENT" merely prevents "the resale of a troubled asset to the Secretary at a higher price than what the seller paid to purchase the asset". That is, the Treasury can't go higher than the inflated price of the asset at which the seller unjustly enriched themselves. That's not much of a restriction, and they seem keen to buy the securities at inflated prices, the better to keep them at the trough.
After explaining this all to callers, the Treasury Dept. adds "We do not want to reward failure."
:: posted by buermann @ 2008-09-28 23:06:14 CST |
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Equity only in "some cases". Bankruptcy judges will not be allowed to reset the terms of mortgages. The House GOP's massive insurance bailout program, where we insure the over-insured and under-capitalized securities, essentially covering the credit default swaps, is even in there. That's some nasty sausage.
update:the rough draft, that will apparently be a finished draft by tomorrow.
:: posted by buermann @ 2008-09-28 10:44:01 CST |
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interbank lending subsituted with federal reserve lending?:
Spikes in the TED spread can strike panic into the hearts of people who say they know what the fuck it is, but thanks to the internets I have found one such person who says "the TED spread can remain elevated for some time without the world coming to an end." He says that because it's much cheaper to borrow from the fed than another bank, so banks are lending from said fed.
They are going to try to pass something Monday, before anybody outside the committees even know what the details are. The safe assumption is that the fine print reads "SCREW YOU" in tiny tiny letters.
:: posted by buermann @ 2008-09-27 15:21:06 CST |
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Is it really a debate when neither participant knows what they're talking about?:
Obama's criticism of the so-called "surge" in the past has focused on the fact that short-term tactical successes were not marshaled in pursuit of any of the aboveboard strategic goals claimed, namely political reconciliation between Iraqi factions leading to a stabilized and democratic federal government. But - and I was in a noisy bar trying to pay some attention to details besides what will "resonate" with the yokels - unless I missed it when he was insisting that we must surge back into Afghanistan and Pakistan, he never described what he thinks the underlying problems in Afghanistan are, let alone how his short run tactical shift is going to fix them.
I don't know what his goals are in Afghanistan. The only thing he talked about was the bag-and-tag approach to Al Qaeda leadership that, while cosmetically appealing - like slashing executive pay when the culprits have already used their golden parachutes - doesn't achieve any sort of systemic alteration of circumstances he can call "victory". It's a variation on the GOP's solution to the credit crisis (cut taxes! ???! success!):
Bag Bin Laden!
???
Smoking ruins!
To be unfair and establish the false premise that I should know what some presidential candidate whose claiming authority on the issue should know: I don't know what my goals would be in Afghanistan, either. The first thing that comes to mind would be figuratively getting my army out the Khyber Pass alive. More to the point, Obama doesn't appear to know: there is no "issue" page on the war he's embracing ownership of, and his speech two months ago laying out what he'll do - complete the militarization of humanitarian aid and reconstruction efforts; kill "terrorists" better faster and stronger; and most amusingly "increase international support to develop the rule of law across the country" - doesn't explain what it's going to achieve. How are the vast populations supporting the resurgence of the Taliban going to be incorporated back into our puppet municipality in Kabul? Are our ever expanding stellar constellation of goals going to be circumscribed to a simple victory of coming home with some heads on sticks? One could hope, I suppose, that that's the implication.
Along these lines, Reidar Visser explains a serious misunderstanding that shook whatever scant confidence I might have had that Obama understood the basics in Iraq well enough to disengage constructively. The political likelihood of a non-punitive withdrawal was always very slim, and populist rage that the Iraqi "government" is enjoying the kind of budget surpluses we wasted invading their country now makes it a virtual impossibility. Obama's provisions where others might put conditions for a generous withdrawal are outright miserly. But the least we could have is somebody who understood the place well enough not to inadvertently tear down the few tatters that remain of their society as we trip over our bayonets on the way to the door.
:: posted by buermann @ 2008-09-27 13:52:04 CST |
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what happened to uuuh?:
We are receiving rumors that Obama did a couple lines before the game, to pave a highway over the wagon trail between his brain and his mouth.
This is almost as funny as this. No, more so. McCain is saying Obama isn't "ready to lead" because Obama agrees with McCain, so obviously you shouldn't vote for McCain either, I mean, that's the guy the guy who isn't ready to lead agrees with.
:: posted by buermann @ 2008-09-26 21:26:36 CST |
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paulson's price:
Paulson has explained that his $700 billion bailout package is quite explicitly nothing more than a bribe for banks to come out of the darkness and declare their toxic waste, so that banks know who they can lend to. "If we design it so it's punitive and so institutions aren't going to participate" it won't "protect the system by avoiding as much failure as possible", is how he explained it to Chris Wallace. But you and I have no interest in avoiding as much failure as warranted, only in avoiding the plausible systemic breakdown of interbank lending that allows the rube goldberg contraption of the financial system to function.
A physical model of the financial markets: Your Noodle is Cooked
The reason interbank lending might freeze up is out of fear of who is holding the toxic paper: nobody knows who has lined their pockets with lead plates. I would like to know, myself, just what is preventing the fed from busting down the vault doors with an army of accountants, spread out across the land to discover and publish the details of every last scrap of repackaged pile of putrified paper, effectively lighting insolvent banks on fire and ending the threat of an interbank credit seizure because we would then know just who we can no longer lend to. No credit crisis, just a big fat fire to keep us warm through the death spiral.
My question is, basically: did they let the banks keep their 4th amendment rights when they stripped us of ours?
:: posted by buermann @ 2008-09-26 15:54:53 CST |
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:: posted by buermann @ 2008-09-26 13:25:43 CST |
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I would like to thank House Republicans for this cheap financial experiment:
Q: Can you look out the window?
A: Sure.
Q: Do you see a procession of bedraggled, starving sharecroppers in the streets, begging for dimes and lining up behind the dumpsters because congress didn't approve the 2008 Breadline Act before recess?
A: No.
Q: Paulson promised us a mushroom cloud of financial collapse by today! Where's my bum parade? The markets are flat, the largest bank failure in history has come and gone, men have grown wings, the endless spiral of consumption and waste we call the economy is slowing down but essential economic activity like building better jetpacks continues, and it's sunny out. Why are they still talking about a bailout?
A: Maybe congress should call recess and get some exercise.
Q: It's good flying weather. We could save some money if we bought them all jetpacks and sent them out to play.
A: I bet it would elevate the markets, just to see their little ones soaring gleefully through the air.
:: posted by buermann @ 2008-09-26 11:12:14 CST |
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NO:
The one semi-decent plan to appear this week seems to have been the one Dodd introduced the first day of the circus.
The press now contains much discussion of the all-important pricing mechanism for the bad paper. But no matter how you set it up, the odds favor the bank because the bank knows more about the paper than the buyer of last resort.
Who cares? When a financial institution unloads the paper on the Fed they gain solvency, to recover they need extra liquidity (your money, that is, that they'll take by borrowing from China, or some other sucker). The objective of the intervention is to make banks solvent while providing that liquidity without imposing puritan peril into the market. The bank gains solvency by dumping the paper on us, and liquidity by selling their shit to us for a price. Selling the paper for more than the bank figures it's really worth gives them the liquidity to ostensibly recover. Paying too much for a bad thing is part of the "solution".
But when the bank recovers, we want it back. So we get "warrants" on their solvency for every poo bag we purchase. The "warrant" is a long term stock option set at the market price the day we buy, or preferably before the deal is actually rumored to be announced. When the bank recovers with the help of their ill gotten gains from the tax payer (a.k.a. China), we come back later with our stock options and cash out, defenestrating the shareholders for our (a.k.a. China's) money back. It's self-correcting, at least in part, no matter the pricing mechanism. If we get screwed hard by a firm it boosts the stock price of the firm that screwed us, and we can get payback when we collect on the option. It's a semi-virtuous circle of calamity.
More, or less, depending on where you set the option price and that the bailout works. Barring the currency crisis radicals of every persuasion have been promising since the day we abandoned metal standards (what sets the intrinsic value of gold in relation to nuclear holocaust, anyway?), the bailout oughta work as advertised, and we'll merely suffer a long and devastating recession.
So instead of shouting "NO!" to a bailout that is going to pass one way or the other no matter what the wealthless public thinks - all these fucks in Washington and on TV have their own wall street gift bags to salvage here, neveryoumind the campaign financing and advertising and that revolving door Paulson's skeletal eyesockets keep darting to - I guess I'd like to see streets filled with "STRIKE PRICE" placards, backed up by some "DISCOUNT THIS" affinity group cardboard.
But I'll still take no for an answer. I'm enjoying the circus.
:: posted by buermann @ 2008-09-26 00:22:05 CST |
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Peter R. Orszag is my new hero, because all my heroes are dead:
Orszag explained using the following example: Suppose a company has Asset X, whose value is recorded on the books as $100. Because of the current economic decline, Asset X's real value has dropped to $50. If the company takes part in the government bailout and sells Asset X for $50, the company has to report a $50 loss on its books. On a scale of millions of dollars, such write-downs could ruin a company.
Such companies "look solvent today only because it's kind of hidden," Orszag said. "They actually are insolvent" already, he said.
Someone should tell him that that is part of the plan. Paulson wants us to bribe them into declaring insolvency.
:: posted by buermann @ 2008-09-25 09:46:11 CST |
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other people's jargon:
Let me get this straight.
Credit default swaps are a kinda-sorta insurance policy on debt. You buy a CDS on some sort of debt instrument, you pay a quarterly premium, and if the bond or mortgage back security or whatever goes into default, you collect on the coverage you paid for.
You can buy these policies on bonds, mortgages, auto loans, student loans, credit card debt, hey what the fuck. Out of fear of what I might discover, I haven't attempted to find out if banks are selling swaps against one's own credit card balance, but that seems to be what somebody is doing.
The CDS is "traded" on a market. Apparently they're not really bought and sold, just handed off to third parties, cancelled, or covered. If I sell you a CDS policy, I might offset the risk of paying on it by going out and buying my own CDS policy, and so covering the risk of my paying on your insurance policy with my own insurance. In a way you can think of the CDS market as a dice game that's turned into one big circle jerk.
There are $62.2 trillion dollars in credit default swaps. Now, wikipedia tells me, the international bond market is worth some $45 trillion, about $25T of that in US bonds. Wikipedia says that figure includes our $11 trillion in mortgages, as well as corporate bonds, the US public debt, and the rest of the lot.
Now, I'm just a caveman, but if I were an eight year old who sat down one partly sunny day and just dreamed up our financial system out of the clouds, and looked at it with my simple ganglia, I guess I would say "we are over-insured".
Some $4 trillion - I think that's Roubini's figure - in real estate asset value is disappearing, some fraction of that value is held in mortgage backed securities, some fraction of which will go into default because it's disappearing, some fraction of the defaulting MBS is covered by these credit default swaps, so some fraction of the cost of the defaults will shift to other institutions. And that last part is what will doom us all, but only since last weekend, before which everything was pure awesome?
update: If you've followed this far - and I think I followed it correctly - Robert Waldmann helpfully explains the rest.
:: posted by buermann @ 2008-09-24 23:39:04 CST |
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You all know it means nothing because it really does mean nothing:
REMINDER: You should know that the pretense that there is a hard and fast deadline this Friday for the House to pass a plan means nothing. You all know it means nothing because it really does mean nothing.
Spikes in LIBOR and the TED spread can strike panic into the hearts of people who say they know what the fuck those things are, but everybody else seems to be in a good position to just juggle the shotguns until Paulson backs off his plan to pump puritanical peril into Bernanke's bumbling bazaar. The last chance to pass a bailout package would presumably be when they're finally willing to cave on some form of equity swap so that we don't lose our shirts for their fuckups.
I still look at this problem and see a solution for the now 4.7 million displaced Iraqis, conveniently liberated from their homes by a country with crisis level surpluses in residential real estate. We literally have entire towns about to be nationalized and nobody to put in them.
:: posted by buermann @ 2008-09-24 14:42:46 CST |
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surge!:
"Our findings suggest that the surge has had no observable effect, except insofar as it has helped to provide a seal of approval for a process of ethno-sectarian neighborhood homogenization that is now largely achieved," Agnew's team wrote in their report.
Agnew's team used publicly available infrared night imagery from a weather satellite operated by the U.S. Air Force.
:: posted by buermann @ 2008-09-22 21:05:41 CST |
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ass end up:
The real victims of the housing bubble are ordinary folks who bought a home they could afford to live in, rather than invest in, anytime between, say, 1998 and 2007, and perhaps an unknown number of suckers who were outright defrauded by lending agencies. The later they bought, the worse they've been screwed. Paulson's bailout does nothing for them. The Democrats' initial counter-proposals have offered little more than that.
Another way of bailing out Wall Street would be to issue mortgage relief so taxpayers were helping other taxpayers afford their monthly payments. Presumably the same amount of relief as Paulson's bailout could be issued out over a longer horizon, reducing the annual pricetag of the intervention and charging more of it to those holding the securities by restructuring the debt, replacing ARMs with fixed rates, obstructing foreclosures, etc.. The advantages seem obvious: it would shore up housing prices for the victims, which would suspend the ongoing real estate collapse, ensure some return on mortgage backed securities, and help whoever the means testing and occupancy requirements are designed to help to stay in their homes, build their equity, and leave only the most ludicrous lender bets to burn in the flames. If state socialism is the only solution, like the administration is suddenly insisting, it might as well keep a roof over peoples' heads.
The plan thus far works in entirely the opposite fashion. It rescues the most ludicrous Wall Street bets from the flames and leaves the home values to burn through the next half of the asset bubble. While Dodd's
1:1 equity swap would cover taxpayer ass, he's starting out by accepting the principle that Wall Street must be rescued first, rather than home owners. This tepid counter proposal doesn't leave him with much of a bargaining position when it inevitably gets watered down.
Either way you screw those who stayed liquid in order to take advantage of the unprecedented period of creative destruction that would surely follow the utter absurdity of the past decade and would rise from the ashes to become our new, wiser rulers in however many generations it would take for something of value to rise out of said ashes. I weep for them, whoever they are.
:: posted by buermann @ 2008-09-22 11:45:10 CST |
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2333:
the dollar amount Secretary of Treasury Paulson wants every man woman and child in America to hand out to Wall Street conditionality free while kicking said men women and children out of the homes they're buying with the $2333.
:: posted by buermann @ 2008-09-21 19:17:22 CST |
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