Tuesday, February 24, 2009

subprime works
The Financial Mess & Solution Explained In 3 Minutes

The presentation above is the quickest and best primer you'll ever see on what led to this. A shorter version: greed and deception. But if you flip through those slides you'll be able to explain it to others. Thanks to Bruce at The River Blog for retrieving it.

What it doesn't explain is deleveraging. That's what's so unpredictable, unknowable, since the closest known financial event was when all the railroads were used to back bonds back in the 1860s and they were way over-leveraged and it all went bad in 1871 and things like international commerce and eating food shut down for awhile. Multiply that by a factor of 7.5, add it to the dollar going off the gold standard in 1974, subtract a little Great Depression, and divide by a regression analysis accounting for the compression of time and space. You've got at least two, two-plus years of fairly intense trouble ahead which could also develop into a prolonged Dark Ages. Sound like a strong statement? The S&P Case-Shiller National Home Price Index reported that prices sank a record 18.2% during the last three months of 2008, compared with the same period in 2007
. More of the same if some people don't get their heads out of their own I'm sure very sweet-smelling asses immediately.

A credible and consistent economic plan is called for, i.e., The One We Don't Got. This would need to include monetary policies widely viewed in the US as unorthodox. Easy money, zero-rate policy, hard stimulus that builds infrastructure and making the debt-failed sectors of the housing market solvent, philosophy be damned. Plus foreclosure forbearance. Under everything is The Land, and on it people live. This is pretty simple stuff. Fuck the banks, they're fucking fucked anyway. Nationalize them and re-privatize later.

The more people we keep in their homes and working, the faster we get out of this. And along the way we better get rid of the All Growth Is Good economic assumption. Because that does not begin to describe the world we're heading into.

13 comments:

Brother Tim said...

I saw this over at Bruce's and thought it was very good. Your addendum adds a lot to it.

The thing I don't understand is: They were blaming rising food costs on oil hitting $130-140/barrel. Now, oil has dropped below $40/barrel and food is still going up. Been at the grocery store lately?

BTW-- I used your great wisdom as the theme of my post today (this is getting to be a habit). Gave you kudos and a link, of course.:)

Bee said...

food prices go up, and stay up, because....well, because they can. We're not going to stop eating anytime soon. Driving, yes, we can get away without it, sometimes...but eating? Nope, can't get out of that one.

Agreed, Marc, this whole economic mess is just the end result of decades of exceptionally failed policy.

MarcLord said...

Hello Brother, and Bee,

I've done a fair amount of thinking about this phenomenon and am a guy who took econ and said "you people are philosophical poltroons." As for food prices, they don't adjust downwards as quickly as upwards.

Basically you've got lots of exceptional pressures going through a weakened system. We've had multiple inflationary (M3 expansion, commodities, gold, oil) and deflationary spirals (housing, durables, commodities, stock prices, credit) going on at the same time. And what do those spirals give you? A vortex. One with intense and rapid price volatility. System breakage and spill-out.

One easy way to think about it: when oil went up so high it breached the system's wall. The high price of the thing which makes us run gave us a double hernia. And now that it's cheap again doesn't seem to matter because it triggered effects like not being able to walk.

Brother Tim said...

If this double hernia gets any worse, screw walking, I won't be able to eat.

Still Life Living said...

Hola dude.

Where do I start with this pile of shit? My mechanic told me yesteday that if this problem doesn't get reversed within four years, there will be fighting in the streets. Based on his comment, we probably have more time because he is an Armenian - and they tend to be jumpy in catastrophes.

As far as All Growth Being Good, that reminds me of when Joe Frank was pushing cancer as good because, after all, it is just unregulated growth.

Zoey and Me said...

Hi Marc, I was in a lawyers office today and couldn't believe it when he told our mutual client, "You wanna get your money back outta the 11 income properties you own? Well you can't sell um so collect the rent and don't pay the bank, let em all go south. If they don't foreclose in 14 months you got your money back and hit the road Jack, take the money and run cuz your credit will be shit anyway you slice it". WOW. I thought that was fraud. Turns out I told this story at my favorite watering hole and everybody's doing it. . . everybody upside down on their income property. Wait for that new wave to hit the streets.

MarcLord said...

Bro Tim,

ditto.

SLL,

Your mechanic is living proof that Armenians can't starve.

MarcLord said...

Z&M,

that is a great story. Must recycle somehow. We've also idly wondered what would happened if we just quit feeding the Beast. It can't eat us all, not at once.

Naj said...

funny ... in Iran we often blame people for being 'creative', consider them the source of mismanagement in the society and keep giving example of 'decent hard working westerner' ... it seems like taking matters into one's hand is universal when trust is abolished from ruling systems (money in America!)

Bee said...

I have a nutcase co-worker...you know, one of those who never read the paper or watched the news until she hooked up with some righ-wing survivalist type. So, she says to me the other day "I'm going to buy a handgun so I can defend myself against the coming revolution." This nincompoop with a handgun and two kids in the house scares me way more than any revolution, lol.
I told her that this country has had consistently peaceful transfers of power for the past 200+ years, even during the Civil War (well, the north did, anyway), and I don't see that going awry anytime soon, no matter how bad things get. Things were a lot worse during the Great Depression, partly because there was also an ecological nightmare in the dustbowl thrown in for good measure. Then again, we have global warming coming up behind us to bite us in the collective rears.

Naj said...

This is relevant:
WHO KILLED THE ELECTRIC CAR?

a really disturbing documentary!

(sorry for irrelevance! but too sharable to ignore!)

MarcLord said...

Naj,

it's relevant, baby. It's keystone-relevant.

Vincent said...

What you say about the land makes more sense than I have read elsewhere. Reminds me of the start of The Grapes of Wrath - I refer to the movie not the book. It is the bankers who drive the family off their Oklahoma land. But bankers were in the ascendant then. Tomorrow's equivalent will be farmers taking the land round Wall Street and trying to get rid of the bricks and mortar so they can graze goats.