March 29, 2009
-- by Dave Johnson
Go read what happened. It's kind of long, but good and explains it pretty well. The Big Takeover : Rolling Stone
People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'etat. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.basically, after deregulation, the big investment banks couldn't find "enough unemployed meth dealers willing to buy million-dollar homes for no money down" tokeep the mortgage racket going.
The crisis was the coup de grace: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess.
And yes, what it comes down to is that all this means that housing prices still have a loooongggg way to fall. Every single house that sold for more than it should have, for all those years, to all those suckers, who took out all those mortgages -- they all have to go back where they should be. Bubbles unwind ALL the way down, every time, and you can't "reignite the housing market" or "stabilize" prices or anything else.
Go look at the trend line of house prices for the last hundred years, and that is where prices have to be -- where housing is relatively cheap, never more than 25-28% of your income (and that is the UPPER limit), and a mortgage plus taxes plus insurance plus maintenance is lower than rents by enough of a margin so that people can make money buying a house and then renting it out.
Posted by Dave Johnson at March 29, 2009 2:40 PM
Interesting that the Atlantic article that I posted several entries below is titled the Quiet Coup. The nexus of these authors starts laying it bare.
Isn't the Geithner plan to save credit by saving this system?
Ergo -- you've got to move into gold, cash with FDIC backing (FDIC is broke and their fee to recap will strip most profit from small banks)
This also means the Democrats will go down with then next ship. The parties will take turns boarding sinking ships and riding them down.
From Quiet Coup
Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.
One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.
These personal connections were multiplied many times over at the lower levels of the past three presidential administrations, strengthening the ties between Washington and Wall Street. It has become something of a tradition for Goldman Sachs employees to go into public service after they leave the firm. The flow of Goldman alumni—including Jon Corzine, now the governor of New Jersey, along with Rubin and Paulson—not only placed people with Wall Street’s worldview in the halls of power; it also helped create an image of Goldman (inside the Beltway, at least) as an institution that was itself almost a form of public service.
Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. A civil servant from Washington invited into their conference rooms, even if just for a meeting, could be forgiven for falling under their sway. Throughout my time at the IMF, I was struck by the easy access of leading financiers to the highest U.S. government officials, and the interweaving of the two career tracks. I vividly remember a meeting in early 2008—attended by top policy makers from a handful of rich countries—at which the chair casually proclaimed, to the room’s general approval, that the best preparation for becoming a central-bank governor was to work first as an investment banker.
A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”
Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. AIG’s Financial Products division, for instance, made $2.5 billion in pretax profits in 2005, largely by selling underpriced insurance on complex, poorly understood securities. Often described as “picking up nickels in front of a steamroller,” this strategy is profitable in ordinary years, and catastrophic in bad ones. As of last fall, AIG had outstanding insurance on more than $400 billion in securities. To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible.
Obama pushes out the GM CEO. Let's think about this. Who is advising Obama? Do they have a vision for the Motown restructuring? Did he consult the unions? One would think. Are Rahm Emmanuel and Christine Romer effectively on the board of GM now. Do I think there is anyone within 500 miles of DC that can run a car company, or design a regulatory paradigm for the financial markets, or balance a budget? The markets are going to radically rule here because their is no 2,000 mile screw driver to save this. The government will bring all its power to bear and GM will fail. So is it markets or government? And will government help or hurt?
OT except I expect a convergence of
Government cannot control the economy and...
Government cannot do science
This is all part of the cure....
"But if there is one scientist who knows more about sea levels than anyone else in the world it is the Swedish geologist and physicist Nils-Axel Mörner, formerly chairman of the INQUA International Commission on Sea Level Change. And the uncompromising verdict of Dr Mörner, who for 35 years has been using every known scientific method to study sea levels all over the globe, is that all this talk about the sea rising is nothing but a colossal scare story.
Despite fluctuations down as well as up, "the sea is not rising," he says. "It hasn't risen in 50 years." If there is any rise this century it will "not be more than 10cm (four inches), with an uncertainty of plus or minus 10cm". And quite apart from examining the hard evidence, he says, the elementary laws of physics (latent heat needed to melt ice) tell us that the apocalypse conjured up by
Al Gore and Co could not possibly come about.
The reason why Dr Mörner, formerly a Stockholm professor, is so certain that these claims about sea level rise are 100 per cent wrong is that they are all based on computer model predictions, whereas his findings are based on "going into the field to observe what is actually happening in the real world".
When running the International Commission on Sea Level Change, he launched a special project on the Maldives, whose leaders have for 20 years been calling for vast sums of international aid to stave off disaster. Six times he and his expert team visited the islands, to confirm that the sea has not risen for half a century. Before announcing his findings, he offered to show the inhabitants a film explaining why they had nothing to worry about. The government refused to let it be shown. "
Your pal the MS born, Air Force trained, tree farmer
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