"European banks are generally more levered than their U.S. counterparts."
Paul Kedrosky (htp: Jesse)
UPDATE: the Daily Telegraph concurs.
Wednesday, October 01, 2008
The $700 billion is to appease foreign investors?
More from iTulip
Eric Janszen gives us his take on the brouhaha:
This iTulip post describes the process whereby the current deflation may suddenly turn into inflation.
This one warns against Bill-bashing for its own sake, which may be cutting off your nose to spite your face - something must be done, he says, because the market does NOT self-correct. I would suggest that it might, if the government and banks hadn't "intervened" long ago to create a fiat currency. Once that's happened, we're playing the game for the benefit of bankers and politicians, and by their rules.
This iTulip post describes the process whereby the current deflation may suddenly turn into inflation.
This one warns against Bill-bashing for its own sake, which may be cutting off your nose to spite your face - something must be done, he says, because the market does NOT self-correct. I would suggest that it might, if the government and banks hadn't "intervened" long ago to create a fiat currency. Once that's happened, we're playing the game for the benefit of bankers and politicians, and by their rules.
And the solution?
Anyone who saw Brian Cox as Titus Andronicus at the Swan in Stratford in 1987, can never forget it. I remember seeing a girl in the audience with her mouth hanging open, paralysed, as Titus stunned us with his almost gloating description of his suffering. And what a master Shakespeare was, understanding that when emotion is heightened, it is also complex.
TITUS Ha, ha, ha!
MARCUS Why dost thou laugh? It fits not with this hour.
TITUS Why, I have not another tear to shed.
Humour can also unblock the mind to work creatively in a disaster. But there is also the "We're doomed, I tell ye!" John Laurie type who only cheers up when it's as bad as he always said it would be. Watch out for them, because unconsciously, they may steer events to match their temper.
iTulip explains succinctly, below, the problem caused by the house price crash. For me, though, it's a reminder of how wonderful the old cartoons are.
TITUS Ha, ha, ha!
MARCUS Why dost thou laugh? It fits not with this hour.
TITUS Why, I have not another tear to shed.
Humour can also unblock the mind to work creatively in a disaster. But there is also the "We're doomed, I tell ye!" John Laurie type who only cheers up when it's as bad as he always said it would be. Watch out for them, because unconsciously, they may steer events to match their temper.
iTulip explains succinctly, below, the problem caused by the house price crash. For me, though, it's a reminder of how wonderful the old cartoons are.
Tuesday, September 30, 2008
Boing!
Dow and FTSE back up again. Thought so. But unlike 1987, I don't think this will be over by Christmas. Bear market rally, don'tcha know?
Super post by Denninger today, too. He points out, among other things, that the Dow started falling yesterday when everyone (himself included) expected the Bill to pass. And as he says, Bernanke upped the money in the system by vast amounts anyway, and it still hasn't fixed the problem. Just how much petrol do you need to throw onto a fire to put it out?
Super post by Denninger today, too. He points out, among other things, that the Dow started falling yesterday when everyone (himself included) expected the Bill to pass. And as he says, Bernanke upped the money in the system by vast amounts anyway, and it still hasn't fixed the problem. Just how much petrol do you need to throw onto a fire to put it out?
The BBC perspective
After yesterday's "No!" in Congress, BBC "business editor" Robert Peston refers to a "breakdown in the US political system."
To me, it's the very opposite: it's a prewar Lagonda that has spent years with its axles on bricks, and it's just had a new set of tyres put on; after long disuse, the engine has finally turned over. Maybe it will seize up again, but for now there is a hint of democratic accountability.
For example, is it not interesting that more Democrats voted against the Bill, than Republicans for (both as a percentage and in absolute numbers)?
I watched Peston on TV last night and said to my wife, "I should be in front of that microphone." I heard him on the radio this morning and still want his job.
The MSM: one despairs.
To me, it's the very opposite: it's a prewar Lagonda that has spent years with its axles on bricks, and it's just had a new set of tyres put on; after long disuse, the engine has finally turned over. Maybe it will seize up again, but for now there is a hint of democratic accountability.
For example, is it not interesting that more Democrats voted against the Bill, than Republicans for (both as a percentage and in absolute numbers)?
I watched Peston on TV last night and said to my wife, "I should be in front of that microphone." I heard him on the radio this morning and still want his job.
The MSM: one despairs.
Monday, September 29, 2008
Now what?
Maybe I'm not that good at body language, though I've spent years with unstable children; and maybe it's having to speak to a semicircular audience of journalists outside the White House, and he hasn't learned the actor's trick of seeming to direct his attention steadily to one indeterminable member of the audience; but Hank Paulson's statement made just now (c. 21.45 British Summer Time), with the left-middle-right upanddown movement of his head, and the earnestness of his mouth and lips, makes him look panicky.
But maybe the worst players in the banking market should be allowed to burn out anyway, as Marc Faber has said for a long time.
How many of the crucial 10 swing votes in the House were down to the polemical fax-fomenting of Mish, Denninger at al?
And will the Establishment force them to vote again and again until they get it right? Nancy Pelosi and her "bipartisan" mantra (3 or 4 times in one statement) seemed to hint at this.
But maybe the worst players in the banking market should be allowed to burn out anyway, as Marc Faber has said for a long time.
How many of the crucial 10 swing votes in the House were down to the polemical fax-fomenting of Mish, Denninger at al?
And will the Establishment force them to vote again and again until they get it right? Nancy Pelosi and her "bipartisan" mantra (3 or 4 times in one statement) seemed to hint at this.
Under New Management
If I understand him, Nouriel Roubini (htp: City Unslicker) is saying don't buy the rotten apples, become the greengrocer's senior partner.
Sunday, September 28, 2008
My plan: a $15 trillion dollar bailout.
US nonfinancial debt (second quarter 2008) is $32.4 trillion dollars. This pie chart gives a breakdown of the debt by type. US GDP in 2006 (est.) was $13.13 trillion - let's guess it's $14 trillion now. Thus debt as a proportion of GDP is about 230%.
This graph shows that the 50-year mean ratio of such debt to GDP is 120.1%. So to get back to a long-term average, DEBT MUST HALVE. As I said in a reply to a comment today, it's like a game of musical chairs, but taking away half the chairs in one go.
In fact, an almost perfect fit would be to cancel all the mortgage debt in the USA - just to get back to the level of debt averaged over the last 50 years.
And Marc Faber is saying the bailout will need 5 trillion, not $700 billion.
Hmmm....
Why don't we get really bold: $32.4 tn debt x 46% in the form of mortgages = $14.9 trillion. Give everybody their houses free of debt, make future loans on domestic property illegal. Yes, there'll be inflation, but the liberated houseowners will be able to afford it.
Will the banks be ruined? They're ruined now. Will the government have to nationalise them? They're doing it now.
These are revolutionary times. We may not be able to scourge the moneylenders from the temple, but at least we can chase them out of our houses.
Yes, the result's a house price crash, if you can't pump up the price with phoney-baloney money. But no debt, so so what?
The banker has inflated everything so you have to borrow to have anything. He's made himself indispensable, like a pusher of addictive drugs standing outside the school gates, giving away samples to get you hooked. He's your "friend", your "main man", who'll make you "well".
Bankers and their pet traders have become insanely rich by making you poor. Your assets are big on the outside and hollowed-out by debt on the inside; it's why they call it a bubble.
Do you know your enemy?
This graph shows that the 50-year mean ratio of such debt to GDP is 120.1%. So to get back to a long-term average, DEBT MUST HALVE. As I said in a reply to a comment today, it's like a game of musical chairs, but taking away half the chairs in one go.
In fact, an almost perfect fit would be to cancel all the mortgage debt in the USA - just to get back to the level of debt averaged over the last 50 years.
And Marc Faber is saying the bailout will need 5 trillion, not $700 billion.
Hmmm....
Why don't we get really bold: $32.4 tn debt x 46% in the form of mortgages = $14.9 trillion. Give everybody their houses free of debt, make future loans on domestic property illegal. Yes, there'll be inflation, but the liberated houseowners will be able to afford it.
Will the banks be ruined? They're ruined now. Will the government have to nationalise them? They're doing it now.
These are revolutionary times. We may not be able to scourge the moneylenders from the temple, but at least we can chase them out of our houses.
Yes, the result's a house price crash, if you can't pump up the price with phoney-baloney money. But no debt, so so what?
The banker has inflated everything so you have to borrow to have anything. He's made himself indispensable, like a pusher of addictive drugs standing outside the school gates, giving away samples to get you hooked. He's your "friend", your "main man", who'll make you "well".
Bankers and their pet traders have become insanely rich by making you poor. Your assets are big on the outside and hollowed-out by debt on the inside; it's why they call it a bubble.
Do you know your enemy?
Saturday, September 27, 2008
Bank lending - can somebody please help?
In the edited-out part of my recent letter to the Spectator, I pointed out that since 1963, average RPI has been c. 6.5% and the long-term real growth of GDP is said to be 2.5% p.a., so let's say nominal GDP growth has increased by 9% - my maths is up to that.
But over the same period, Bank of England stats show an annualised average increase in M4 bank lending of c. 13.5%, which suggests that lending grows at 4.5% p.a. above GDP. If that's right, UK bank lending as a proportion of GDP doubles every 16 years.
Can that be right? And what about the ratio of credit to the total of all national assets? Is that increasing, too? Because it looks as though eventually, the banks must own everything.
I reproduce below a graph from a mid-August post on Marc Fleury's blog. This shows the long-term ratio of total credit to GDP in the United States, and the current level of indebtedness seems to be way, way above the Great Crash situation in 1929.
But over the same period, Bank of England stats show an annualised average increase in M4 bank lending of c. 13.5%, which suggests that lending grows at 4.5% p.a. above GDP. If that's right, UK bank lending as a proportion of GDP doubles every 16 years.
Can that be right? And what about the ratio of credit to the total of all national assets? Is that increasing, too? Because it looks as though eventually, the banks must own everything.
I reproduce below a graph from a mid-August post on Marc Fleury's blog. This shows the long-term ratio of total credit to GDP in the United States, and the current level of indebtedness seems to be way, way above the Great Crash situation in 1929.
Somebody please put me right and/or direct me to authorities and information sources.
My mind keeps saying, "This cannot be right, surely everything is sort of normal, really, we'll muddle through." I find myself discounting even McCain's Churchill quotation ("This isn't the beginning of the end of this crisis. This is the end of the beginning") and the politicians' use of the word "meltdown" to bounce Congress into accepting the bailout package proposals. I have spent years warning about a possible crash, but I've never, I think, allowed myself to get apocalyptic. I prefer my disaster movies to stay safely in the cinema.
So, how bad is it really, and does the banking system really have a tendency to acquire everything?
Faber says $5 trillion, not $700 bn
Dr Faber thinks the real cost will be seven times greater than the proposed bailout.
... and here are his thoughts on where to be invested - and the current advantages and future perils of holding cash:
... and here are his thoughts on where to be invested - and the current advantages and future perils of holding cash:
The revolution is personal
"Financial Crisis: The next decade could be our very own Great Depression" says the economics editor of the Daily Telegraph.
Towards the end of the 90s, I was expecting a major crash. Then, I was in a laughable and condescended-to minority, it seems. And I'm certainly not important enough for anyone in the City of London to give me a minute of their heavily-overremunerated time. Even last year, warning on Cafe Hayek that America could become dirt-poor financially, I was mocked for my ignorance of "purchasing power parity".
I was unfamiliar with the phrase at that time, but I still think my instincts were right. I don't know what ordinary people are going to live on, in the US and the UK, when everything we used to make can be made cheaper elsewhere and the world's average income (in Purchasing Power Parity terms) is $5,000 a year.
When the government runs nearly everything, as it seems determined to do, maybe "if you can't beat them, join them". Here in the UK, the next administration will have very limited freedom of action, as the present one expects (perhaps wrongly) to lose the coming General Election and so has adopted a "Götterdämmerung" strategy - selling our nuclear power firm to the French, undermining the Monarchy, and generally assaulting anything that will hold us together politically, culturally and financially. In a way, I hope Labour wins again; but then again, it would be no punishment - they'd continue to eat and drink well while perfecting our destruction.
In case you imagine I am politically biased, please note that I hold no brief for the pack of smoothies that is the current Tory Party, any more than for the Fifth Columnists who have spent 11 years destroying the country from the top. Both seem to see their future as part of the Euro-elite and think the common people depend on their bull****, as koalas depend on eucalyptus leaves.
Abandon all belief in these charlatans and concentrate on your personal life plan.
Towards the end of the 90s, I was expecting a major crash. Then, I was in a laughable and condescended-to minority, it seems. And I'm certainly not important enough for anyone in the City of London to give me a minute of their heavily-overremunerated time. Even last year, warning on Cafe Hayek that America could become dirt-poor financially, I was mocked for my ignorance of "purchasing power parity".
I was unfamiliar with the phrase at that time, but I still think my instincts were right. I don't know what ordinary people are going to live on, in the US and the UK, when everything we used to make can be made cheaper elsewhere and the world's average income (in Purchasing Power Parity terms) is $5,000 a year.
Being right is no use at all, except on a personal level: I re-entered the despised public sector at the end of 1999 so that I would have something to live on when the financial world unravelled. Now, you need to make your own survival plans - it shouldn't (I earnestly hope) be guns and dried food, but what line of work will you be doing and how much can you sell to get rid of debt?
It's not too late. The Equitable Life mess took a long time to reach its endpoint, and there was quite a window of opportunity to get out of their with-profits fund with a reasonable amount of your savings intact. Similarly, houses have dipped in price, but (in my view) nowhere near hit bottom; nor do I expect them to return to current levels for a generation (in real terms; if the government permits hyperinflation, they may return in nominal terms, but that'll be no comfort when a loaf of bread costs £10).
When the government runs nearly everything, as it seems determined to do, maybe "if you can't beat them, join them". Here in the UK, the next administration will have very limited freedom of action, as the present one expects (perhaps wrongly) to lose the coming General Election and so has adopted a "Götterdämmerung" strategy - selling our nuclear power firm to the French, undermining the Monarchy, and generally assaulting anything that will hold us together politically, culturally and financially. In a way, I hope Labour wins again; but then again, it would be no punishment - they'd continue to eat and drink well while perfecting our destruction.
My newsagent told me this morning that he works 90 hours a week. He referred to a Daily Express front page story from yesterday, which said that it was indeed better to live on benefits. I'm not surprised. In ancient times, it was understood that if you wanted a good job doing, you employed a freedman, since slaves were complacent and lazy. Democracy has become a process whereby slaves appoint masters who will feed, clothe and house them.
In case you imagine I am politically biased, please note that I hold no brief for the pack of smoothies that is the current Tory Party, any more than for the Fifth Columnists who have spent 11 years destroying the country from the top. Both seem to see their future as part of the Euro-elite and think the common people depend on their bull****, as koalas depend on eucalyptus leaves.
Abandon all belief in these charlatans and concentrate on your personal life plan.
$700 billion: cui bono?
Hunter in the Daily Kos (HTP: my brother) says that the $700 billion rescue plan has no relation to the (much smaller) likely amount of mortgage defaults; instead, it's designed to prop up the derivatives scam that banks have been running for years.
I've thought recently that the bankers and traders are, in effect, being offered absolution without confession (1), restitution (2), doing penance (3) or a "firm purpose of amendment" (4).
1. Full disclosure of all liabilities and "assets"; admission of each person's part in the debacle. This should be Watergate Plus: there's a lot more than four burglars and the damage to third parties is incalculable.
2. Preferably, repayment of past bonuses awarded at a time when the recipient knew, or ought to have known, that the game was destabilising his own firm and the national economy.
3. Ideally, jail time, for some; at least, loss of office for those responsible.
4. Adoption of regulations designed to maintain the value of the currency and prevent future speculative bubbles.
From time to time we hear the defence that the consumer was at fault, too. Perhaps, if you're thinking about home equity withdrawals; but even the boll weevil is "just looking for a home" as Leadbelly sang, and when banks opened the money sluices house prices doubled. The buyer had no option to purchase a home at 2002 prices in 2007 (and I'm not sure what happened to the cost of rent in that time). The lenders should have known what they were doing; the poorest borrowers were not their equals in expertise. There was a duty of care.
What would houses cost, if it had always been illegal to use them as collateral for debt? What would the US and UK economies look like, if the vast sums sunk into housing had gone into small business enterprises? How much wealthier would we be?
I've thought recently that the bankers and traders are, in effect, being offered absolution without confession (1), restitution (2), doing penance (3) or a "firm purpose of amendment" (4).
1. Full disclosure of all liabilities and "assets"; admission of each person's part in the debacle. This should be Watergate Plus: there's a lot more than four burglars and the damage to third parties is incalculable.
2. Preferably, repayment of past bonuses awarded at a time when the recipient knew, or ought to have known, that the game was destabilising his own firm and the national economy.
3. Ideally, jail time, for some; at least, loss of office for those responsible.
4. Adoption of regulations designed to maintain the value of the currency and prevent future speculative bubbles.
From time to time we hear the defence that the consumer was at fault, too. Perhaps, if you're thinking about home equity withdrawals; but even the boll weevil is "just looking for a home" as Leadbelly sang, and when banks opened the money sluices house prices doubled. The buyer had no option to purchase a home at 2002 prices in 2007 (and I'm not sure what happened to the cost of rent in that time). The lenders should have known what they were doing; the poorest borrowers were not their equals in expertise. There was a duty of care.
What would houses cost, if it had always been illegal to use them as collateral for debt? What would the US and UK economies look like, if the vast sums sunk into housing had gone into small business enterprises? How much wealthier would we be?
Friday, September 26, 2008
Have Britons become slaves?
Lilith's daughter has been charged for demonstrating back in June. I was disturbed about it then, and am again now.
As in the early nineteenth century, the people are effectively disenfranchised and have little other way to express their dissatisfaction than by demonstrations - in this case, holding up a placard. Do American police arrest placard-holders outside the White House, or is America still a democracy?
It's not as though we're putting the windows through in Whitehall, as in 1831 (Reform Bill), 1855 (against closing pubs on Sundays) and on other occasions.
When did the police turn from being a people's Watch to fight crime as normally understood, to a standing army whose purpose is to suppress the people?
As in the early nineteenth century, the people are effectively disenfranchised and have little other way to express their dissatisfaction than by demonstrations - in this case, holding up a placard. Do American police arrest placard-holders outside the White House, or is America still a democracy?
It's not as though we're putting the windows through in Whitehall, as in 1831 (Reform Bill), 1855 (against closing pubs on Sundays) and on other occasions.
When did the police turn from being a people's Watch to fight crime as normally understood, to a standing army whose purpose is to suppress the people?
Spectator letter is published
The Spectator magazine has published my recent letter; heavily edited, but at least it was the first in the list, so that's some sort of recognition:
"Storing up more trouble
Sir:
Your leading article (20 September) calls for a ‘kick up the backside’ to the banking industry. That kick should be aimed elsewhere. The British and American governments have not merely permitted this crisis to happen, but positively created it by a deliberate relaxation of monetary controls. Worse still, they have now decided that instead of destroying excess credit by asset deflation, bankruptcies and share collapses, the monetary inflation is to be consolidated by absorption of bad debt into the public finances.
I don’t see how this can end well. Some commentators are already saying that, if passed unaltered, the proposed American financial legislation could, once properly understood, trigger a major crash in US financial shares, possibly before this letter is published.
I think The Spectator and its economically savvy readers should put on fresh pairs of winkle-pickers, and gather in Whitehall and Washington for some kicking practice."
"Storing up more trouble
Sir:
Your leading article (20 September) calls for a ‘kick up the backside’ to the banking industry. That kick should be aimed elsewhere. The British and American governments have not merely permitted this crisis to happen, but positively created it by a deliberate relaxation of monetary controls. Worse still, they have now decided that instead of destroying excess credit by asset deflation, bankruptcies and share collapses, the monetary inflation is to be consolidated by absorption of bad debt into the public finances.
I don’t see how this can end well. Some commentators are already saying that, if passed unaltered, the proposed American financial legislation could, once properly understood, trigger a major crash in US financial shares, possibly before this letter is published.
I think The Spectator and its economically savvy readers should put on fresh pairs of winkle-pickers, and gather in Whitehall and Washington for some kicking practice."
A crisis of democracy, not of capitalism
One of the features of the present crisis is that it is not so much financial as political. Vast bailouts of greedy and destructive banks lead Americans to ask, who is running the country, and for whose benefit? Mish and others are turning from financial commentators to pro-democracy activists.
Shall "Government of the people, by the people and for the people" perish from the earth? The lazy, defeatist cynics of the UK fail to understand how Lincoln's words still burn brightly in many Americans' hearts. It's why they are so quick to attack their politicians as liars and shysters, wheras we merely expect them to be that anyway. Their idealism shames us.
Shall "Government of the people, by the people and for the people" perish from the earth? The lazy, defeatist cynics of the UK fail to understand how Lincoln's words still burn brightly in many Americans' hearts. It's why they are so quick to attack their politicians as liars and shysters, wheras we merely expect them to be that anyway. Their idealism shames us.
A Marmite Backwater
Dark Matter, Dark Energy, now Dark Flow... my brother directs me to a new discovery/theory.
It seems that a great cluster of galaxies that is halfway towards the edge of the observable universe, is moving in a different direction from the general stretching of space-time. It's like a little boat caught in an eddy.
Cosmologists theorise that there may be massive, unobservable structures hundreds of billions of light years away, pulling these galaxies in their direction. They imagine that the universe beyond what we can see (c. 17 billion light-years) may be very different from ours.
And some of us laugh at mediaeval theological speculation. How foolish those people were, building elaborate worlds of internally-consistent ideas, applying nothing but logic to extend their understanding beyond the few things they were certain that they did know, attempting to move from the seen to the unseen.
And now we lift our gaze from the CERN to the unCERN.
I wonder what Ben Jonson would have made of it all?
May I prevail on you all for charitable contributions to fund a new chair of Marmite Studies?
Thursday, September 25, 2008
Sell your house now?
If Karl Denninger is right and the long-term trend for house prices is 3 times income, instead of 5 or 6 as it seems to be now, then houses remain overpriced in real terms.
So even though house sales are seizing up and prices dropping, shouldn't we go ahead and sell anyway?
So even though house sales are seizing up and prices dropping, shouldn't we go ahead and sell anyway?
Wednesday, September 24, 2008
Diary of a mayfly day trader
Wait! I was wrong! The Dow is up 32 points (09:42 EST)! Buy, buy! We've turned the corner! I am renaming this blog Bullwatch!
Oh no, only 14 points now (09:44 EST). Hold. Or maybe sell - over 50% of gains lost in only TWO MINUTES, goodness knows what could happen in a whole hour. Yes, sell! Sell!
Gosh, this is hard. Think I'll watch the TV news, they know what's going on.
UPDATE
OMG, down 32.42 (10:13 EST)!! In only 43 minutes! Over a 7-hour day that means 633.32 off the Dow!!
No, make that "!!!"
And there's another two days to go!!! !!! !!!
However could Mouton de Rothschild stand the tension?!!??
Oh no, only 14 points now (09:44 EST). Hold. Or maybe sell - over 50% of gains lost in only TWO MINUTES, goodness knows what could happen in a whole hour. Yes, sell! Sell!
Gosh, this is hard. Think I'll watch the TV news, they know what's going on.
UPDATE
OMG, down 32.42 (10:13 EST)!! In only 43 minutes! Over a 7-hour day that means 633.32 off the Dow!!
No, make that "!!!"
And there's another two days to go!!! !!! !!!
However could Mouton de Rothschild stand the tension?!!??
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