Supposedly "the angriest guy in economics" is Richard Daughty, aka The Mogambo Guru - but he gives his rants a comedy twist.
Karl Denninger, on the other hand, is very emphatic that our economic woes are no laughing matter. Here he calls for all the "off-book" items to be included in lenders' accounts, and if that bankrupts them, so be it: a cleansing of the financial system, condign punishment for the perpetrators and a warning to others. This is similar to Marc Faber's position: he says the crisis should be allowed to "burn through and take out some of the players". Gritty.
And concrete. Denninger supplies a photo of a customer-empty store at 6 p.m. on a Sunday evening, to underscore his point.
Now that's something we can put to the test - look at the shops in your area and work out how crowded you'd normally expect them to be at the beginning of December.
5 comments:
I think the problem is if we let this one burn out that it will take all the player with it like dinosaurs.
And to be honest I don't see too many mammals around to rebuild.
it seems to me that bringing the investment "on book" will add some clarity; but until resets actually occur and we find out who has the nonperforming loans...we're still unable to value the newly on book portfolios.
i have been suggesting that the current climate will continue until the outlook for those loans is better known, more or less around the 3rd quarter of next year.
however, the "rate freeze" proposal may change the landscape; and this question needs to be revisited after more details are known.
Baht At: Thank you for your comment. We did survive the thirties, sort of.
FC: Welcome! I agree that there is a big difference between an accident waiting to happen, and the event itself. I suggested a few weeks ago (http://theylaughedatnoah.blogspot.com/2007/11/real-cycles.html) that the crisis may hold off until after the Olympics, and perhaps an incoming US President may have the nerve to face the music and take appropriate action while he (or she) can, in early White House days before the need to get re-elected asserts itself. But events don't always fit our schedules.
i also meant to comment that in a "mark to market" system where valuations are truly unknown the potential exists for an overly conservative "marking"-and we may have an example of that in the etrade writedown.
a 70% writeoff would exceed all the forclosure rates for any previous recession by orders of magnitude...and if only 20% of the loans went nonperforming there would be much less than $1.5 trillion lost (quick thumbnail math suggests $400-500 billion plus resale expenses...which is spread out across outside investor groups, so the loss is not entirely in-house).
of course, if etrade is right, those who feel threatened about the fact that china is holding over a trillion dollars of our debt should feel something like 70% less threatened today.
I'm not an analyst, but Denninger says E*Trade specialises in securitised loans for people who presumably already have mortgages, therefore the lender has started from the riskier end and gone deeper.
So as I understand it, a 70% markdown of E*Trade's portfolio equates to 70% of the homeowner's residual equity after allowing for the claims of the main mortgage.
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