Panic: The Story of Modern Financial Insanity

There’s no doubting that rumours of disaster can cause chaos and mayhem, especially in financial markets – in fact, day to day trade relies heavily on it.

However, I think it’s important to understand and distinguish between speculative rumours and genuine concern.  It’s also worth noting that even when we see real cause for concern our psychological make-up is apt to help the chaos and hysteria along as we get swept away by a sea of emotions.

An excellent contribution to this seemingly insane narrative is a recently released book titled Panic: The Story of Modern Financial Insanity, edited by Michael Lewis the author of Liar’s Poker. He contributes several essays to the book, including the one here, “The People’s Panic.” Lewis writes a satirically:

One difference between previous financial panics and the real estate and subprime-mortgage collapse is the sheer number of people involved. “No money down” was an invitation for people far away from Wall Street to take Wall Street-like risks. Just about everyone in America could afford no money down. It wasn’t a financial market that panicked, it was the larger society; and the list of people and ideas that could plausibly be blamed for the mess was long: ratings agencies, mortgage brokers, mortgage originators, Bill Clinton. Gretchen Morgenson at the New York Times blamed Wall Street, for exploiting the middle class. Wall Street people—who lost a lot more money than the poor—blamed their CEOs. The brokers at Merrill Lynch blamed Stan O’Neal, and bankers at Bear Stearns blamed Jimmy Cayne. I wrote a satirical piece…blaming poor people. Seen from the point of view of a rich hedge fund trader, the subprime-mortgage mess looked like a gigantic con perpetrated upon rich people, such as himself, by the poor, who had the hedge fund manager–like audacity to take whatever money was offered to them. Few saw the satire. Some readers were upset by the callousness of hedge fund traders. Many agreed with me, and hoped I’d run for president and teach the poor a lesson.

Another essay well worth mentioning, and which I’ve reproduced here comes from the New York Times Columnist, Paul Krugman, which explains in simple terms why the current crisis is different previous crises that were more temporary in nature.

After the Money’s Gone – New York Times, 14 December 2007

In past financial crises — the stock market crash of 1987, the aftermath of Russia’s default in 1998 — the Fed has been able to wave its magic wand and make market turmoil disappear. But this time the magic isn’t working.

Why not? Because the problem with the markets isn’t just a lack of liquidity — there’s also a fundamental problem of solvency.

Let me explain the difference with a hypothetical example.

Suppose that there’s a nasty rumor about the First Bank of Pottersville: people say that the bank made a huge loan to the president’s brother-in-law, who squandered the money on a failed business venture.

Even if the rumor is false, it can break the bank. If everyone, believing that the bank is about to go bust, demands their money out at the same time, the bank would have to raise cash by selling off assets at fire-sale prices — and it may indeed go bust even though it didn’t really make that bum loan.

And because loss of confidence can be a self-fulfilling prophecy, even depositors who don’t believe the rumor would join in the bank run, trying to get their money out while they can.

But the Fed can come to the rescue. If the rumor is false, the bank has enough assets to cover its debts; all it lacks is liquidity — the ability to raise cash on short notice. And the Fed can solve that problem by giving the bank a temporary loan, tiding it over until things calm down.

Matters are very different, however, if the rumor is true: the bank really did make a big bad loan. Then the problem isn’t how to restore confidence; it’s how to deal with the fact that the bank is really, truly insolvent, that is, busted.

My story about a basically sound bank beset by a crisis of confidence, which can be rescued with a temporary loan from the Fed, is more or less what happened to the financial system as a whole in 1998. Russia’s default led to the collapse of the giant hedge fund Long Term Capital Management, and for a few weeks there was panic in the markets.

But when all was said and done, not that much money had been lost; a temporary expansion of credit by the Fed gave everyone time to regain their nerve, and the crisis soon passed.

In August, the Fed tried again to do what it did in 1998, and at first it seemed to work. But then the crisis of confidence came back, worse than ever. And the reason is that this time the financial system — both banks and, probably even more important, nonbank financial institutions — made a lot of loans that are likely to go very, very bad.

It’s easy to get lost in the details of subprime mortgages, resets, collateralized debt obligations, and so on. But there are two important facts that may give you a sense of just how big the problem is.

First, we had an enormous housing bubble in the middle of this decade. To restore a historically normal ratio of housing prices to rents or incomes, average home prices would have to fall about 30 percent from their current levels.

Second, there was a tremendous amount of borrowing into the bubble, as new home buyers purchased houses with little or no money down, and as people who already owned houses refinanced their mortgages as a way of converting rising home prices into cash.

As home prices come back down to earth, many of these borrowers will find themselves with negative equity — owing more than their houses are worth. Negative equity, in turn, often leads to foreclosures and big losses for lenders.

And the numbers are huge. The financial blog Calculated Risk, using data from First American CoreLogic, estimates that if home prices fall 20 percent there will be 13.7 million homeowners with negative equity. If prices fall 30 percent, that number would rise to more than 20 million.

That translates into a lot of losses, and explains why liquidity has dried up. What’s going on in the markets isn’t an irrational panic. It’s a wholly rational panic, because there’s a lot of bad debt out there, and you don’t know how much of that bad debt is held by the guy who wants to borrow your money.

How will it all end? Markets won’t start functioning normally until investors are reasonably sure that they know where the bodies — I mean, the bad debts — are buried. And that probably won’t happen until house prices have finished falling and financial institutions have come clean about all their losses. All of this will probably take years.

Meanwhile, anyone who expects the Fed or anyone else to come up with a plan that makes this financial crisis just go away will be sorely disappointed.

Over to you

142 Responses

  1. John, let’s put to bed once and for all any notion that the financial storm will arrive on our shores. Time and again we’ve been told by financial savant Professor Wayne Swan that we are immune from the problems which beset other nations.

    Relax….have some dip.

  2. @Stephan:
    Actually, Labour have been going to great lengths to tell us how we cannot hide from the crisis and that the best they can do is “soften the impact”. I personally think they go overboard, but your snide remark bears no resemblance to Swan’s remarks whatsoever… Costello on the other hand was telling people to put as much money into superannuation as possible.

    @John:
    Dude, I respect you are worried about crisis, I really do. You have good insight into economic behaviour and copy+paste skills to die for. But seriously, you’re not bringing up anything new here.

    The crisis hasn’t changed in any way and this thread will bring up the same “Swan vs Costello” rants from both sides (see above) it always does. I appreciate it when you bring up something I haven’t seen before (a new collapse, new stimulus bill/clause, etc); but quoting columns from 2007 is just turning me (and others) off reading any of your stuff.

    I’m saying this in the nicest way I can because, honestly, I like hearing new stuff from you. Just not the same stuff over & over again.

  3. A little insight guys, you don’t have to read or comment sincerely. However, I’ve been asked by a number of people to post some stuff examining the problems in greater detail for educational and reference purposes. In fact, quite a few are not interested in joining the forum for commenting.

    If you read carefully, you’ll note it’s not the same old story repeated over and over again. I try to introduce new facets to a complex subject.

    Also, there are people who are interested in learning more.

    Far from panicking or worrying, I find the responses of much more interest. My background is in behavioural science and business and I have a natural curiosity in the sociological aspects of these types of events. As well as the types of responses good, bad or indifferent.

    Thanks for the feedback, I now know a little more about each of your attitudes and backgrounds.

    Please ignore my threads by all means.

  4. …it’s all for research purposes of course.

  5. Stephan and Ben

    I find it interesting that you both opposing political views as well as opinions on the ability of either party or politician knowing more than the other or being more competent than the other.

    One of the key reasons why we’ll continue to be bogged in this type of crisis is simply because so many people claim they know what the real problems are and how to handle them yet struggle in even comprehending the magnitude and unpredictability of events.

    How can either of you know who is more competent? Do you know something they don’t know?

  6. Ben

    “The crisis hasn’t changed in any way and this thread will bring up the same “Swan vs Costello” rants from both sides (see above) it always does”

    I should give you a prize actually, politics aside and the repetition of the same old rants, which party has a better handle on managing the economy. No putting your mind into auto-pilot and going with Labor simply because that’s what you’ve always done.

    Same for you Stephan. Come on give it a shot.

  7. Great Post John! Now if we could have many, many repetitive posts on death and dying and the most gruesome ways that’s likely to happen.

    As for:

    “now know a little more about each of your attitudes and backgrounds”

    indeed! But those insights cut both ways.

    Not much joy in your household, I suspect! Sad.

  8. John, I think you truly care.

    I think YOU really worry for the people..

    but get intensely FOCUSED…

    I’ve been there…

    that’s cool…but sometimes OTHERS don’t understand…

    They’ve got other things…worries…on their mind…

    offer them COLOUR…that which feels your DREAMS…your INTELLIGENT, forethinking MIND

    no matter who YOU think owns your heart…& soul.

    Try music, quotes, humour…and look for THE LIGHT.

    We’re there. Your mates.

    Moby – Dream About Me

    N’

  9. LOL

    Why did I know you’d come out of the shadows Nature5. You’re one sad character yourself.

  10. N’

    I’m really fine N’, however, I sincerely appreciate your kind intentions.

    Things have really and truly picked up for me of late and a number of opportunities have come about.

    Cheers

    John Mc

  11. Here’s something else for you to snipe about Nature5

    Jobs situation means lenders face more bad debts
    http://www.theaustralian.news.com.au/business/story/0,28124,25178714-5013565,00.html
    CAMERON Clyne had a confident manner as he explained NAB’s strategy under his leadership.

    But the simultaneous release of the unemployment figures going to 5.2 per cent in February demonstrates that Australian banks are facing the inevitability of rising bad debts.

    That is so no matter how often everyone repeats the reality that the Big Four are in much better shape than their foreign peers.

    It is true that the virtual withdrawal of their competitors means the Big Four are able to expand their already massive market share and their margins simultaneously.

    But that doesn’t avoid the problem that many of their customers, particularly in the small and medium business sector, will be unable to cope with drastically changed conditions.

    Those conditions include, in particular, individuals and businesses buying less of just about everything.

    The one certainty of the crisis so far has been that things keep getting steadily worse than everyone had predicted a few weeks or a few months earlier

  12. I can almost guarantee that we’ll start seeing how relevant my previous threads have been in understanding what is actually happening.

    It’s worth saying again: “One of the most significant weaknesses we have today, and especially in this climate, are state government’s like NSW, in my opinion. They’ve grossly mismanaged state finances over the last decade not to mention health, transport, education etc, and they’ve got the gall the hire more spin doctors to try and create the illusion that they’re competent and in control. ”

    Contracts send jobs overseas
    http://www.news.com.au/dailytelegraph/story/0,22049,25178797-5001021,00.html
    NATHAN Rees has been dubbed the Premier for workers in China after revelations that State Government contracts are sending thousands of NSW jobs overseas.

    As the number of unemployed in NSW rose yesterday to the highest level in a decade and the jobless rate reached a national high of 5.8 per cent, The Daily Telegraph can reveal the State Government is creating thousands of jobs in China at the expense of Sydney workers

  13. “nasking, on March 13th, 2009 at 2:56 am Said:

    John, I think you truly care.”

    And yes N’ you’re right on this count. I don’t lose sleep over it though, sincerely.

  14. “I don’t lose sleep over it though, sincerely.”

    That’s obvious John.

    Are you working for Murdoch?
    N’

  15. Who do you work for John?
    N’

  16. N’

    Even if I worked for someone such as Murdoch, I’d never compromise my own principles where getting at the truth is concerned N’. I’m not saying I work for Rup though.

    Cheers

    John Mc

  17. So what’s your motivation John?

    Because I’m not seeing anything POSITIVE.
    N’

  18. Let me join you John:

    Shipowner faces heavy fines over oil spill
    The Australian – ‎7 hours ago‎
    THE owner of a ship that caused a massive oil slick on southeast Queensland beaches may face prosecution and fines of more than $1 million.

    Police treat Germany school killer chatroom ‘warning’ as possible hoax
    guardian.co.uk – ‎31 minutes ago

    ‎Confusion tonight surrounded the veracity of an online warning purportedly posted by Tim Kretschmer, who killed 15 people and then himself in a gun rampage in south-west Germany.
    School shooter warned of attack in chat room The Associated Press

    Bernard Madoff pleads guilty to massive fraud
    The Australian – ‎1 hour ago‎

    Nathan Rees under fire as New South Wales government contracts …
    NEWS.com.au – ‎31 minutes ago‎

    Pakistan police beat anti-govt protesters
    ABC Online – ‎1 hour ago‎

    Jobs situation means lenders face more bad debts The Australian

    Time to get tough on text scams, says watchdog
    WA today – ‎8 hours ago‎

    and on and on and on it goes.

    THE SICKNESS…a self-replicating piece of crap.

    For what?

    Money? Power? Control?

    The sickness INSIDE…from the OUTSIDE.

    A black hole.

    No LIGHT.

    N’

  19. A black hole.

    No LIGHT.

    N’

    Yet, most discussions nowadays center on this never ending cycle of negativity… Who’s responsible?

    Money? Power? Control?

    Political and corporate corruption?

  20. ….I forgot to add the obvious incompetence, because not all politicians or corporate leaders are corrupt, but many are apathetic.

  21. What do they want John?

    Apocalypse? Are they that religiously loopy?

    Or to take beauty…like Moby’s song…& turn it into a revolution?

    The Committee of Public Safety (French: Comité de salut public), set up by the National Convention in July of 1793, formed the de facto executive government of France during the Reign of Terror (1793-4) of the French Revolution. Under war conditions and with national survival seemingly at stake, the Jacobins, under Maximilien Robespierre, centralized denunciations, trials, and executions under the supervision of this committee of first nine and then twelve members. The committee was responsible for thousands of executions, with many high-profile executions at the guillotine, in what was known as the “Reign of Terror.” Frenchmen were executed under the pretext of being a supporter of monarchy or against the revolution. The Committee ceased meeting in 1795.
    (Wiki pedia)

    It doesn’t help John.

    It doesn’t work.

    It only hampers PROGRESS…& EVOLUTION of the mind.

    Can’t you see that.

    The levelling takes stages…incremental steps.

    Not crashing the elevator of society into the basement.

    It doesn’t work John.

    Just causes SUFFERING…more SUFFERING.

    N’

  22. N’

    Take ‘We Didn’t Start The Fire’ by Billy Joel

  23. nasking, on March 13th, 2009 at 8:29 am Said:

    What do they want John?

    Apocalypse? Are they that religiously loopy?

    Who are they N’? It’s not the end of the world.

  24. FOCUS on something different John.

    Anything.

    Something positive…possibly advantageous for our society…even this:

    http://en.wikipedia.org/wiki/Tesla_coil

    N’

  25. nasking, on March 13th, 2009 at 8:34 am Said:

    FOCUS on something different John.

    Anything.

    N’

    Addressing these issues up front and without blinkers on is part of the process of change…towards a more positive future.

  26. …we’re now looking for cures when we should have prevented this crap from happening in the first place…history repeats.

  27. “we’re now looking for cures”

    What cures John? What are you offering.

    Can’t you see what is CATCHING ON?

    It will lead to the deaths of millions.

    Sure, they already use conflict & bogus wars to cause displacement, refugees, cheap workers…but THE COLLAPSE will only lead to more HARM.
    N’

  28. How do we take a shitty situation and turn it around, it can’t be done by turning a blind eye and wishing it away N’.

  29. How many protests have you attended N? And what was the outcome of those protests successful or unsuccessful? Did you get your point across? Did anything change?

    I’m not religious N but I do believe one thing ‘Evil tends to flourish when good people do nothing’

  30. ” turning a blind eye and wishing it away”

    our eyes are wide open John…many of us saw this coming. Spoke about the debt problems. Why do you think the government proposed the stimulus?

    The CONTRACTION will naturally help John.

    No wishing anything away. Practical reduction of debt…incrementally.
    N’

  31. The CONTRACTION will naturally help John.

    No wishing anything away. Practical reduction of debt…incrementally.
    N’

    This will require policy and attitudinal changes in both government and private sectors N. Just as the housing shortage will require policy changes along with careful planning and sensible financing.

    Unless you believe the invisible hand of free markets will do all the work. That’s what got us into this mess, was it not?

  32. nasking, on March 13th, 2009 at 8:48 am Said:

    ” turning a blind eye and wishing it away”

    our eyes are wide open John…many of us saw this coming. Spoke about the debt problems. Why do you think the government proposed the stimulus?

    It’s agree that the stimulus a short term attempt to reduce the impact of the downturn…now we have governments like NSW who have contractors sending jobs offshore.

  33. “How many protests have you attended N?”

    Two…one against Pauline Hanson. Many years ago.

    The other was for the NDP. Years before that.

    “I’m not religious N but I do believe one thing ‘Evil tends to flourish when good people do nothing’”

    I did something. WE did something John. Remember the war…? The Howard government?

    Now, you’re in danger of leading people down a path of no return.
    Of DEPRESSION. W/out HOPE. Or answers.

    Contributing to a PERCEPTION that need not be.

    And what of your own well-being? Will it survive on the sense of pervading DOOM? Thank you in the end?
    N’

  34. N

    “Now, you’re in danger of leading people down a path of no return. Of DEPRESSION. W/out HOPE. Or answers.”

    This thread is about panic of something real or imagined. I have no control over whether we suffer a depression of not. But doing nothing is not the answer is it?

    The answers are most often found in examining the problems N. How do we reverse this negative process.?

  35. Apologies N’ I have to go and won’t be back probably until this evening.

  36. Later John…go in peace. Think positively.

    For my wife…and the other wonderful partners out there.

    SILLY LOVE SONGS – Paul McCartney & Wings – 1976

    chow

    N’

  37. Who watches the watchers and the social engineers, though, Nas?

  38. There is, perhaps, an argument for resonances building up in the system, but they’re the flip-side of the same coin…the same ‘animal spirits’ that Minsky talks about; and those who can will manipulate them, and others will deconstruct them, and shine what little light there is upon them, precisely so that those manipulations, where those are manipulations and not simple cultural artifacts, can be seen for what they are.

  39. @John:
    OK, I accept your argument that we should DO something. Your threads however are simply about the thing we need to do something about. They are about the detrimental effects the crisis has, how bad it’s going to get, and how we should have seen it coming.

    To make an analogy. It’s like the missus/mother harping on & on about not doing the laundry. Yes, we know we’re running out of underwear. We are aware how bad wearing unclean underwear can be for us and that our clothes in general are starting to smell. And yes, we knew all the way into last week we were going to run out of clothes if we didn’t do something. However, we’re more interested in learning how to operate the bloody front-loader washing machine which you won’t talk about!

    Nobody who reads this blog is unware of the crisis, how bad it can get, and that we should have known a long time ago. If they didn’t know before, your daily posts have drilled it home. Time to move on the problem rather than reiterate that there is one.

    @joni & reb:
    Guys, I know there is an “open post policy”, but this was (is?) a “politics” blog right? The focus on financial crisis has really turned me off lately, and I know I’m not the only one. Can we limit such posts to one a week or something? Please?

  40. B.Tolputt, on March 13th, 2009 at 9:24 am

    Sadly, base determines superstructure in the new political economy. Torture and M16 (not M15 shhhh, and we can add our own ASIS into the UKUSA group when it comes to those tortured in Lebanon and Egypt) is about what, if not about Empire and oil? Ditto anything else that can be spun up. Where is this magic land where politics is about something other than ‘who gets what, when, how, and why’?

  41. John

    Good post. I only have 1 thing to say. A house being less than what it was purchased for will only actually result in a loss when the property is truly sold.

    Many of my clients call me concerned that their property is going down in value. So I ask them the following.

    Q. Do you intend to sell you house. A. No
    Q Do you still have your job A. Yes
    Q Are you still meeting your repayments. A. Yes
    Q Do you have room to save on costs A. Yes

    So why are you worrying about the value of your home. It doesn’t matter if the house value falls to $1 if you intend to stay and live in the home. It will only matter when you choose to move and if you don’t plan on moving for the next few years stop getting ulcers.

    No doubt if the economy continues to slide some of my clients may face difficult times ahead, but they will be looked at on an individual basis.

    Our unemployment rate has only climbed to 5.2% a far cry from the 25% or 30% it needs to be before the current crisis is called anything like a depression.

    What we may see is many families having generations of Nana and Pop living with the Son or Daughter and their children. While this may not work for everyone I already have a number of families in this type of arrangement for convenience, not due to monetary restraints.

    This may be a stop gap option for those who unfortunately suffer in the future. Move back into Mum and Dads home and rent the house. Rentals are tight in almost all markets at the moment.

    Look at options in your own individual situation. In many cases there are alternatives to selling in a slow or negative market.

  42. Guys, I know there is an “open post policy”, but this was (is?) a “politics” blog right? The focus on financial crisis has really turned me off lately, and I know I’m not the only one. Can we limit such posts to one a week or something? Please?

    I agree. I have actually given up reading the threads on the GFC, because as others have said – nothing new is coming out – just variations on a theme.

    Therefore – I propose that we will have a single thread per week for the GFC, and that will contain all the GFC talk. I will put a thread up later today and will close all previous GFC threads.

    Is that OK with the other blogocrats?

    (BTW – if anyone has any stories they’d like to cover – email myself or reb or the email address above and we will see what we can do)

  43. Single thread is good, joni

  44. Yay, thanks joni

    It is a very pertinent subject, but sensory overload in this case.

    This might be a topic for discussion joni

    Nathan Rees under fire as New South Wales government contracts send more jobs to China

  45. joni, on March 13th, 2009 at 10:13 am

    Sounds like a plan, Joni, for sustaining every week’s top post.

  46. Joni,

    “Therefore – I propose that we will have a single thread per week for the GFC, and that will contain all the GFC talk. I will put a thread up later today and will close all previous GFC threads.

    Is that OK with the other blogocrats?”

    Totally agree. Good move, Joni. 😉

  47. Nasking,

    “The other was for the NDP. Years before that.”

    Aha! Good man! Knew there were a few of us closet radicals around… 😉

    Admire your determined replies, and the poetry in them. Good stuff. :))

  48. As long as it wasn’t the DLP!

    An acquaintance of our always referred to them as the Dirty Labor Party…

  49. Perish the thought TB!

    That would require some kind of serious political commitment… 😉

  50. @joni:
    Thanks, much appreciated. As might be assumed from me suggesting it, I quite like the idea of a single thread per week for it 🙂

    I would love to see some discussion RE: Premier Rees sending jobs overseas in an environment where we are losing jobs already.

  51. Will try and get a thread up on Rees

  52. Rees and jobs is still GFC. 😉

  53. Actually, the ‘panic’ in relation to Rees and jobs and overseas is all GFC. See above title of thread.

  54. Just picked up from The Age: http://business.theage.com.au/business/anz-slashes-jobs-20090313-8ww1.html

    “ANZ Bank will dump 500 back-office staff in Australia and shift the jobs to India by the end of the year.”

  55. NOt quite – hehe

  56. Legion, on March 13th, 2009 at 11:56 am Said:

    Actually, the ‘panic’ in relation to Rees and jobs and overseas is all GFC. See above title of thread.

    I would say ‘GFC related.

    This was happening before the GFC, and will continue after, it is just that presently, it is put in that context.

  57. Tom R, on March 13th, 2009 at 12:30 pm

    Yep, it comes down to ‘containerisation’. I’m really struggling to ‘see’ how there can be an ectopic space carved out for ‘Chairman Rees’ without discussing the relationships, though.

  58. Actually, I don’t think there even is any such thing as a GFC, nor a job to be sent or not sent anywhere; that kind of thinking is a product of reification, and reification only serves to obscure relations and fuel commodification fetishes, whether evaluatively positive or negative.

  59. You blogocrats are tough on me…. I put up (sniff sniff) a new thread (sniff sniff) and no-one makes a comment (sniff sniff) and …….. WAAAAAHHHHHH!!!!!

  60. Joni we love you, we really do!!!

    XXX

    Some of us just aren’t that into NSW political problems at the mo’. 😉

  61. Haha – that just cause youse are lucky not to be living here.

    And the love is reciprocated.

  62. Min,

    “ANZ Bank will dump 500 back-office staff in Australia and shift the jobs to India by the end of the year.”

    I believe they already had at least 2000 back-office jobs in India.

    When I rung to get my new card activated, I got a strong Indian voice asking for ID and password and balances in the various accounts. I asked where he was working – India. He said he had the data in front of him to confirm.

    So those guys have EVERYTHING they need to conduct identity fraud, or pass info to their mates for such activities. Motive, means, method. And it is another country with a separate (corrupt) political and legal system.

    How much chance would we have of prosecuting an unknown person from another country, if ANZ chose not to be responsible?

    We have transferred salary payments to another bank (with back-office in Australia) and started withdrawing our accounts.

  63. joni, on March 13th, 2009 at 1:07 pm

    Yep. We love ya, and your threads. But, the Norns are having trouble knowing where to snip, when Parliamentary statements from last week magically transport themselves a year into the past, as part of a more-recently fashionable protectionism/xenophobia drive which only travels one-ply deep for the lumpenmass.

  64. Further to my comment:

    “How much chance would we have of prosecuting an unknown person from another country, if ANZ chose not to be responsible?”

    We noticed how responsibly ANZ acted towards customers in OPES Prime…

    We also noticed how carefully they vetted their IT contractors in India…

  65. Elise of Perth, on March 13th, 2009 at 1:28 pm

    Since you’re asking those kinds of questions, what is the extended cohort population to which those singular events are being compared and contrasted (a species of the survivorship fallacy); and what are the legal regimes in place? Is it enough to ask/beg the question??

  66. I wonder how long Macquarie Bank has got left?

    Babcock & Brown calls Deloitte as administrators
    http://www.theaustralian.news.com.au/business/story/0,28124,25180879-643,00.html
    At its peak, Babcock shares traded at $37 and were worth at least $10 billion. But when the stock was suspended, it was worth just 32.5 cents.

    The downfall of Babcock, which had been seen as a “junior Macquarie Group”, was blamed on too much debt being laden on to the complex company during the bull market.

  67. I know this is a political blog, no more GFC, even if the Coalition and certain parts of the media frame most of their arguments through the GFC lens.

    If we’re not careful we may just see a return of Howard Era style of economic thinking – Shanahan’s at it again.

    Idealism at the expense of jobs
    We don’t need an ETS when the financial crisis is cutting employment as well as emissions, writes Political editor Dennis Shanahan | March 13, 2009
    http://www.theaustralian.news.com.au/story/0,25197,25178504-7583,00.html
    It appears likely the Rudd Government’s concession of the loss of 300,000 extra jobs by the middle of next year will be exceeded and the so-called “support for up to 90,000 jobs” sorely tested, if not completely busted. The Government’s genuine argument for this disastrous and frightening turnaround in the labour market is the impact of the global recession. The Treasurer, Kevin Rudd and Finance Minister Lindsay Tanner all talk about shifting circumstances and the need for quick and decisive action to meet unforeseen and disastrous changes.

    Yet the Government is insisting on introducing two significant pieces of legislation — changes to industrial relations laws and an emissions trading scheme — with obvious effects on employment prospects for tens of thousands of Australian workers, and price rises for millions of consumers, without any new or revised forecasts since the onset of the great world recession.

  68. shaneinqld, on March 13th, 2009 at 9:47 am Said:

    John

    Good post. I only have 1 thing to say. A house being less than what it was purchased for will only actually result in a loss when the property is truly sold.

    Many of my clients call me concerned that their property is going down in value. So I ask them the following.

    Q. Do you intend to sell you house. A. No
    Q Do you still have your job A. Yes
    Q Are you still meeting your repayments. A. Yes
    Q Do you have room to save on costs A. Yes

    So why are you worrying about the value of your home.”

    The answers to these questions are not so straight forward to many people and their circumstances.

    I’m fine about my own home, what’s concerning is the level of debt many homebuyers and investors are carrying forward.

  69. Shane

    Take our couple as an example: Domenico Monardo, 21, and his girlfriend, Carla Hirigoyen, 20, the $21,000 in federal and $3000 in NSW government grants they received was a big incentive to build a new house rather than purchase an established one. The couple recently paid $305,000 for a 594sqm block of land at The Ponds, a new Landcom development near Kellyville in Sydney’s northwest.

    They will borrow a further $240,000 to build their dream home.”

    You don’t see any future troubles for this couple?

  70. Yes John. I see the problem. But it would be the same if this couple remained renters. Perhaps worse because hopefully they can pay off as much as they can, while they can and so have some equity in the property should worse come to worse.

    The people who are in deep poo are the ones who borrowed $350,000 and locked into fixed rates a year ago.

    Just from my observations but low cost housing (such as for Domenico and Carla) and middle cost housing are holding their own price-wise, the ones going down the tube are homes at the upper end of the market.

  71. John McP,

    Excellent observation!

    “Yet the Government is insisting on introducing two significant pieces of legislation — changes to industrial relations laws and an emissions trading scheme — with obvious effects on employment prospects for tens of thousands of Australian workers, and price rises for millions of consumers, without any new or revised forecasts…”

    It would be useful if the opposition would stop their internal squabbling and cheap point-scoring for a minute, and apply themselves to making sure this legislation is properly analysed and fit for purpose.

    That is, after all, why the taxpayers pay their wages, isn’t it?

  72. Min

    My point is this, it goes beyond the moment and to a place where more jobs will be lost and regardless of whether you’re living an upscale or downscaled existence your ability to afford rent or pay off a mortgage is relative to the income you earn.

    Affordability is a major issue, I agree, whether your renting or buying. As per my previous thread.
    https://blogocrats.wordpress.com/2009/01/27/seriously-unaffordable-housing/

    – If you want to make homes more affordable, you should let home prices adjust lower, to a level that reflects tighter credit. How hard is it to figure out that if you take away copious amounts of credit from the housing market (in Australia or America) prices are going to fall?

    –But is that such a bad thing? Well, it is if you own a house and have a large mortgage on it. But let’s consider a new study on global housing affordability by Performance Urban Planning. The report concluded that Australia has the most unaffordable housing of all the nations surveyed. Not only that, but according to the report, Australia doesn’t even have a single urban area in which housing is merely “moderately unaffordable.”

    –Now before you write in defending the honour of Australia’s housing market, let’s be clear what the survey’s designers consider unaffordable. They use a ratio of Median House Price to Median Household income. A house is “Affordable” if the ratio is 3.0 or less. It’s “Moderately unaffordable” if the ratio is 3.1 to 4.0. It’s “Seriously Unaffordable” if the ratio is 4.1 to 5.0. And it’s “Severely Unaffordable” if the ratio is 5.1 or more.

    –Australia sports a ratio of 6.3, which is both “Severely Unaffordable” and “Seriously Daloob.” New Zealand comes in next t 5.7, followed by Ireland at 5.4 and the U.K. at 5.3. Owing to its large number of metropolitan areas in which there is a wide variety of median prices and incomes, the U.S. nationwide ratio is just 3.2.

  73. Elise of Perth, on March 13th, 2009 at 2:40 pm Said:

    John McP,

    Excellent observation!

    Exactly Elise. My point, and the reason I’ve been trying to get people up to speed on understanding our economic situation is because in Rudd’s word ‘this is becoming a real political shit storm’ . Although some would argue the GFC doesn’t really exist and if it did, we’re immune to it.

    I was hoping many politician (even Blogocrats) would rise beyond the status quo of being pro- and – anti – Labor and/or Liberal or pro or anti-union etc, because this crisis is bigger than all the petty squabbles. I can see various groups getting bogged down in senseless and endless debate that detracts rather helps us come through this in reasonable shape.

  74. John, one thing that you will never catch me doing is defending the honor of the Australian housing market. It’s been a nightmare for a number of years.

    It’s impact has been not only economic but has had a severe impact on Australian society. An example is (me again being politically incorrect) impacting on a couple’s ability to have children plus rear their own children, due to the need for an average household to have to have both parents working.

    As per the other blog, I stated that there is no such thing as affordable housing in Australia.

    And so what to do about it?

  75. Min,

    From my reading of the data and available analyses, you are correct.

    The houses with the MOST difficulties in selling (time on market, price discounting) are those over $5m.

    Those under $1m are mostly OK, with only minor price discounting over the last year or so.

    I’m inclined to agree with ShaneinQld, that it is not relevant to consider hypothetical changes in value, unless you are planning on selling, or using the asset value in some way eg for further lending, reverse mortgage, etc.

    It is similar to the argument that Buffett makes about shares. He says basically that if you do not intend to sell, then don’t make yourself sick watching the day to day gyrations in the sharemarket. It is not relevant to the long-term value of the asset to you.

    An exception would need to be made for Babcock and Brown or Allco, who may leave their investors with nothing of value. In that case, you may as well make yourself sick.

    Of course, Buffett does not invest in businesses he “does not understand”. Better half and myself took that view of both millionaire factories (B&B and Macquarie) – we did not see they were value-adding enterprises, just skimming enterprises. Thank heavens we stuck to boring basics, or I really WOULD be feeling sick by now.

  76. “The houses with the MOST difficulties in selling (time on market, price discounting) are those over $5m.

    Those under $1m are mostly OK, with only minor price discounting over the last year or so.”

    It’s the inability to maintain payments on debts and people being forced to sell that will bring prices down to more sustainable levels as well as tighter lending conditions that prevent people entering the market. You’re assuming good times are just around the corner.

  77. Min, on March 13th, 2009 at 2:54 pm Said:

    John, one thing that you will never catch me doing is defending the honor of the Australian housing market. It’s been a nightmare for a number of years.

    It’s impact has been not only economic but has had a severe impact on Australian society. An example is (me again being politically incorrect) impacting on a couple’s ability to have children plus rear their own children, due to the need for an average household to have to have both parents working.

    As per the other blog, I stated that there is no such thing as affordable housing in Australia.

    And so what to do about it?”

    You’re right, it now usually takes full time 2 salaries to meet mortgage obligations over the lifetime of some loans hence the reason we’re considered so unaffordable.

    LOL you came up with some bloody good suggestions yesterday. We need to address the housing affordbaility crisis pronto – and that will be far from easy.

  78. A link from realestate.com who aren’t exactly an impartial observer and so I wouldn’t like to stand by the data, but here it is anyway: http://www.realestate.com.au/doc/Resources/News/cheaper-to-buy-than-rent.htm?rsf=newsletter_rea

    Yes John..but if you can’t afford to make the mortgage payments, neither can you afford to rent.

  79. John McP,

    I’m not assuming anything John. I’m reporting on the situation as it stands.

    As I discussed long ago, on Tim’s Blogocracy, it is not necessary to have a price avalanche to reach sustainable levels. We can also get back to historical ratios (e.g. median house price to median salary) by about 4-5 years of flat market, with slow growth in the rest of the economy.

    I realise you think we are going to have the Mother of All Recessions. I think you are a minority voice on that.

  80. Min

    “Yes John..but if you can’t afford to make the mortgage payments, neither can you afford to rent.”

    And that’s the crisis we’re facing. Increasing mortgage stress and increases in rent (so the landlord can afford to meet his or her mortgage obligations), a tighter job market and subsequence job losses and it all comes down to the bottom line. Little left over to spend and keep the economy ticking over.

  81. To me John – step 1 is public housing (as suggested scattered within regular subdivisions so as to not stand out like you-know-whats).

    This provides employment and helps to keep the building industry choofing. This also provides a lower common denominator re the term ‘affordable’. Many low paid families have entered the housing market due to easy credit/low doc loans who should have been able to qualify for public housing. Example, the last time I looked, in many areas of major cities there is between a 7-12 year wait for public housing.

  82. John McP,

    “And that’s the crisis we’re facing. Increasing mortgage stress…”

    You may be over-dramatising there. Check this out:

    http://money.ninemsn.com.au/article.aspx?id=701731

    Some 350,000 households have been rescued from mortgage stress on account of the rate cuts according to the Housing Industry Association (HIA). And the easing of pressure has been felt right across the country with all areas experiencing a less strain over the last four months.

  83. Min

    This is why discussions keep going around in circles, because the problems we have to deal with overlap each other, and can’t be artificially separated and analysed as though one doesn’t impact on the other. Shane’s a mortgage broker and his livelihood depends on more people getting into the market even when prices are potentially dangerous for first homeowners to commit to with the level of debt required to buy.

    As stated previously, rather than encouraging young couples into large debts perhaps it’s time the government stopped ignoring this country’s housing shortages for lower socio-economic groups, without over-inflating existing housing prices and rents. It all comes back to affordability across the board.

    Housing shortage will hurt the poor
    http://www.theaustralian.news.com.au/story/0,25197,25174266-601,00.html
    The Government has justified the temporary boost to the grant as a measure to bring forward purchases in the face of economic crisis.

    But the council’s report highlighted the country’s long-term housing shortage, the burden of which would fall predominantly on poor families.

    Owen Donald, the chairman of the council, said a lack of land on urban fringes of cities did not appear to be driving the shortage, contrary to industry claims.

    Instead, Dr Donald said, state governments had failed to provide enough social housing. They had also contributed to prolonged planning and development approval constraints on “infill” land in built-up areas.

    New research prepared for the report showed a lack of affordable housing for low-income renters. These renters need 237,000 dwellings, the research found.

    But across the country there are only 91,000 affordable houses or apartments. Of these, higher-income households occupied 56,000, leaving a shortage of 202,000 affordable houses and apartments.

    The Minister for Housing, Tanya Plibersek, said the report showed that government and industry responses could begin to close the gap between housing demand and housing supply.

    “Certainly, the argument that the previous federal government mounted that it was all the states’ faults and it was all about land supply, I think is disproved by this report.”

    Dr Donald said the worst-case scenario of a 1.5 million shortage in houses was unlikely to eventuate, as the Government and industry responded to the problem.

  84. OOPS posted on the wrong post, this is the right one.

    Elise, we know that interest rates fluctuate and lower interest rates are only a reprieve. Mortgage stress comes about mainly because of the level of debt people are carrying. Interest rates cannot remain this low indefinately nore will we be able to contain inflation indefinatley

    Households rescued from mortgage stress
    More rate cuts coming, but emergency cut unlikely
    Recent interest rate cuts have provided welcome relief for mortgage belts across the nation ahead of what is expected to be a tough new year for many.

    Some 350,000 households have been rescued from mortgage stress on account of the rate cuts according to the Housing Industry Association (HIA). And the easing of pressure has been felt right across the country with all areas experiencing a less strain over the last four months.

  85. Here’s a classic case of lending insanity, yes, it’s still going on, from the the DT’s Roger Coombs

    Low earner? Up your limit
    http://www.news.com.au/dailytelegraph/story/0,22049,25177550-5001030,00.html
    ..what about this little example of fiduciary absurdity? Two young blokes I know – let’s call them Dave and Steve – are typical of their generation. They subsist on minuscule income earned in part-time jobs as they work their way through university.

    Most of the time, they get around in thongs and stylishly ripped-at-the-knee jeans and faded T-shirts. It’s the look they seem to prefer – and it does not belie the truth.

    They hardly have tuppence to rub together between them.

    But a month ago, Steve was asked by his bank if he wanted to increase his credit card limit from $8000 to $12,000. What on earth was the bank thinking? Steve has no capacity to repay $8000 let alone $12,000.

    Then last week, Dave was offered the same incredible opportunity. His limit could also go up by a couple of grand and all he had to do was sign on the dotted line.

    Now, to the best of my knowledge, both Dave and Steve have been pretty responsible with their levels of indebtedness so far.

    But let’s say they do manage to max out their cards. The truth is they’d have no way of repaying their debts.

    With luck, they might – just – manage to keep up with the monthly interest charges but repaying the full amount would have to be put off indefinitely. Or until someone else bailed them out. Hmmm.

    Could it be that the banks actually PLAN it this way? Call me naive if you like.

    OK, as we all know, the free market runs on credit and a global contraction in credit availability is both a symptom of, and a cause of, the spectacular escalation of the much-discussed and analysed GEM.

    But if part of the solution is to offer lengthy lines of credit to the very lowest of low income earners, then I’m Maynard Keynes.”

  86. John,

    You really must stop cut-and-pasting long chunks of articles, and what you do must use blockquotes tagging. I fear that reb’s brain has gone into meltdown as he has not been around all day today.

    How can we glean what is the article and what is your comment on it?

  87. Now that was a neat little narrative that needed no explaining from me Joni. It supports what I’m saying in easy to understand language.

    I know, one economics thread a week, I’m going..I’m going..please take me off the authors list.

    Cheers

  88. “Min, on March 13th, 2009 at 3:12 pm Said:

    To me John – step 1 is public housing (as suggested scattered within regular subdivisions so as to not stand out like you-know-whats).

    This provides employment and helps to keep the building industry choofing. This also provides a lower common denominator re the term ‘affordable’. Many low paid families have entered the housing market due to easy credit/low doc loans who should have been able to qualify for public housing. Example, the last time I looked, in many areas of major cities there is between a 7-12 year wait for public housing.”

    You’ve got it down pat MIN. Herein lies the BIG PROBLEM.
    THIS IS THE CRISIS WE NOW HAVE BREWING AWAY AND IT WILL ONLY GET WORSE.

    Thanks Min

  89. Min

    And it’s certainly getting nasty amongst mortgage brokers, they know the market is getting much tighter. What used to be a market of plenty is now drying up.

    Mortgage brokers ‘stifling’ competition
    http://www.theaustralian.news.com.au/story/0,25197,25181483-12377,00.html
    ONLINE mortgage lender MyRate says it has lodged a complaint with the competition watchdog, claiming a deal between two rival lenders is stifling market competition.

  90. John McP,

    “Interest rates cannot remain this low indefinately nore will we be able to contain inflation indefinatley”

    You really must stop using contradictory negative stories, John. You can’t have a quid each way on this.

    IF we have the Mother of All Recessions, as you are predicting, THEN we will not have high inflation, we will have LOW inflation and LOW interest rates. Inflation is a result of high demand.

    Check out the relationship between recession and inflation in the Economics textbooks or the copious data on your favorate other MOAR period.

    The main exception I am aware of, is when you have an external driver like OPEC oil prices (1970’s), which caused stagflation. They will not get away with excessive prices for long next time without destroying their oil industry, because we now have viable substitutes with electric cars based on new battery technology &/or fuel cells.

    Creative destruction here we come. All we need is for OPEC to get greedy… 😉

  91. Elise

    John McP,

    “Interest rates cannot remain this low indefinately nore will we be able to contain inflation indefinatley”

    You really must stop using contradictory negative stories, John. You can’t have a quid each way on this.

    Think long and hard about what you’re saying (LOL), I’m signing off, for good. Don’t rule out the risk of hyper-inflation.
    I thought you were more clued in to this stuff.

  92. Elise of Perth, on March 13th, 2009 at 4:38 pm

    My advice to middly, only son (and father of my gorgeous, adorable only grandchild, grandie with the huge beautiful big brown eyes and whose wee hair is starting to curl around the back of her head..now 13 weeks old) and currently the only one of my crew in the housing market, son that is. Do it now, take advantage of the 1st home buyers grant and lock in. A matter of self-preservation.

  93. John McP,

    Please go and talk to someone professionally.

    Seriously. Please?

  94. John

    I have over 300 customers that live in QLD and NSW. At this stage not one has been effected by the GFC.

    My point is that I am not going to scaremonger them all with possible outcomes for their future. I see absolutely no reason whatsoever in calling them all and giving the possible dangers of losing their job, interest rates rising, the world exploding.

    I will deal with any client as the need arises and I give them credence to call me if they have a problem or a concern.

    I see no difference in someone renting or paying off a home, if the payment is roughly the same they are far better to very slowly own something than to forever own nothing.

    If the payments get hard share with a friend and rent the other house and split the rental income to assist with both loan repayments.

    There are so many options if people look outside the square.

  95. “Inflation is a result of high demand.”

    Not necessarily. I think I recall economics 101 dealt with stagflaton, and most undergraduates would have some understanding of it’s structural causes. It was not simply caused by oil prices.

    Equally, I’m not sure that the citizens of Zimbabwe are causing the price spiral by their insatiable demands or spiralling oil or commodity prices.

    High inflation with high unemployment – I recall that this structural inflation can be caused by excessive government spending, wage inflation without regard to labour demand or labour reform (usually a consequence of wage outcome centralisation/insufficient regard to the labour market).

    Eradicating the high inflation results in increasing levels of unemployment during a period of already high unemployment.

    In a carbon constrained world, it is quite realistic to envisage a recession that becomes stagflation.

  96. Tom of Melbourne,

    “Not necessarily. I think I recall economics 101 dealt with stagflaton…” “In a carbon constrained world, it is quite realistic to envisage a recession that becomes stagflation.”

    I covered stagflation. I also covered a carbon-constrained world in talking about OPEC. I would strongly suggest that oil supply/demand and oil prices will be the primary cause of carbon contraint in the foreseeable future.

    I would suspect that Zimbabwe’s problems are partly to do with printing money, and indeed to do with oil prices and commodity prices that are too much for their fragile domestic economy. Happy to stand corrected, if you know better.

    As for Economics 101, from “Macroeconomics – Understanding the Wealth of Nations” by David Miles and Andrew Scott:

    “Figure 12.4 shows the inflation experience among the seven leading industrialised nations over the last 30 years. We can note five distinct periods. The first covers 1973 – 1976 when inflation inccreased in all countries. Economists refer to this period as OPEC1…Industrialised nations were heavy importers of oil and had low oil stocks in the early 1970’s, so the increase in oil prices lead to a rapid increase in inflation.

    By 1977 most countries had stabilised their inflation in response to OPEC1, but in 1979 OPEC again raised oil prices (OPEC2)…Inflation surged again…The increase in oil prices and the associated rise in interest rates led to a global recession.”

    As I suggested, the world did not have an answer to high oil prices in the 1970’s, but we do now. Our response will be different next time, I reckon. 🙂

  97. How about just in a world where a domino effect of insolvency destroys the supply base, and scarcity is induced, even as monetary easing increases the money supply?

  98. Elise of Perth, on March 13th, 2009 at 4:49 pm Said:

    John McP,

    Please go and talk to someone professionally.

    Seriously. Please?

    Please don’t get personal Elise, it doesn’t become you. Just makes you sound nasty. Remember what happened after you got personal on Blogocracy you ended up being completely wrong. Just as you are now. You were sure something was wrong with my mental faculties, you were wrong..wrong…wrong.

  99. joni, on March 13th, 2009 at 10:13 am Said:

    Guys, I know there is an “open post policy”, but this was (is?) a “politics” blog right? The focus on financial crisis has really turned me off lately, and I know I’m not the only one. Can we limit such posts to one a week or something? Please?

    I agree. I have actually given up reading the threads on the GFC, because as others have said – nothing new is coming out – just variations on a theme.

    Therefore – I propose that we will have a single thread per week for the GFC, and that will contain all the GFC talk. I will put a thread up later today and will close all previous GFC threads.

    Is that OK with the other blogocrats?

    (BTW – if anyone has any stories they’d like to cover – email myself or reb or the email address above and we will see what we can do)”

    I’m hoping people don’t go back into their denial caves and resort back to Rudd vs Costello/Turnbull, instead of looking at the real issues on not the petty politics.

    Cheers

  100. John,

    may I point out that I have been educated by your posts and actually relish each one. And for someone accused of being too negative and whose readers are over discussing the GFC, how did your post generate so many comments?

    The news In the industry in which I work is also primarily negative. In some instances cures are found, in others they are not. Nothing can be achieved however unless all the symptoms are identified, analysed, discussed, consulted over and strategies towards solving the problem agreed upon and implemented immediately. If those strategies fail to meet their intended ends, more analysis, discussion and consultation takes place and so on. If the problem still resists the given solutions, the process is repeated.

    Most of the time, the problem-solving creates different and sometimes more serious problems. An additional line of attack ensues and so on. And all of this occurs within rigorously tested processes.

    The point is, irrespective of the negativity, all in the industry to which I refer persist in analysing and discussing the problem for the sake of saving lives and health. You get the analogy …

    What if the problem-solvers in my industry went for the avoid negativity argument – avoid analysis and discussion?

    You have certainly helped my minimal understanding of the GFC and for that I am grateful.

    At the end of the day, “money makes the world go around”

  101. Elise, firstly I sought to clarify you simple comment – “Inflation is a result of high demand.”

    I recall a discussion/debate among some economic thinkers about the difference between price increase and inflation. Somewhat esoteric I think.

    Though many here would no doubt be interested that the hero of the anti Costello brigade, Dr John Hewson, had a most memorable intervention in it. At that time his comments were as well considered as those he expresses these days.

    Perhaps you would outline whether you consider price increases and inflation to be fundamentally the same?

    This goes to the question of scarcity. Restraining carbon emissions is a form of scarcity, this can result in an increase in the price of goods and services that consume carbon.

    Constraining carbon, creating scarcity, increasing prices, combined with increasing unemployment from the GFC. This sounds pretty close to a formula that causes stagflation.

    And it isn’t a result of “high demand”.

  102. RN

    “The point is, irrespective of the negativity, all in the industry to which I refer persist in analysing and discussing the problem for the sake of saving lives and health. You get the analogy …”

    I certainly do RN, and the system is obviously sick. You’ve made my day, thank you so much for your feedback. You’ve described the process I’ve used as an analyst and yes, in medicine the same rigorous standards apply.

    My admiration for people such as yourself in such a demanding profession is boundless. And I’m betting you certainly weren’t motivate by the money. It’s because you care.

    I’ve been very open about suffering from depression, however, that has no bearing whatsoever on my analysis and I take it to heart when someone who knows of my battle tells me to see a professional for help. It hasn’t been the first time I’ve had this said to me. Maybe I shouldn’t be so open – then again, I’m an activist in the the area of mental health – so I have no shame. And for the record I do see a professional for help.

    A letter I had proudly published in the SMH

    The danger of denying that men suffer depression
    http://www.smh.com.au/news/letters/the-danger-of-denying-that-men-suffer-depression/2006/01/09/1136771496816.html

    Once again, thank you very much RN.

    Cheers

  103. Kudos John.

  104. RN

    Boundless optimism isn’t all it’s cracked up to be, especially where money is concerned. Journalists also have an obligation to take a critical view in their analysis. I’d like to see the episode. If it sounds too good to be true, it’s probably a scam. A bit like housing and stocks in recent years.

    TV comic rips into finance guru
    http://www.theaustralian.news.com.au/story/0,25197,25182748-12377,00.html
    COMEDIAN Jon Stewart and financial commentator Jim Cramer squared off today over the CNBC TV network’s reporting of Wall Street ahead of the market meltdown, and Cramer conceded he – and others – gave some bad advice.

    In recent days on his mock news program The Daily Show with Jon Stewart, the funnyman has taken Cramer, host of CNBC’s Mad Money, to task by saying he and CNBC reporters befriended Wall Street executives and former government officials instead of questioning them as journalists should.

    Cramer, who offers advice and stock market tips on his CNBC show, has fought back, saying Stewart chose only examples of bad advice Cramer had given.

    “I think everyone could come in under criticism. We all should have seen it before,” Cramer said.

    “Everybody got it wrong. I got a lot of things wrong.”

  105. Cheers Toiletboss.

  106. John,

    I was urged to speak my mind given the number of blogocrats asking you to back off from the GFC. You are a realist even if the news is bad and undesirable. I’m certain your motive in volunteering bad news is to educate and broaden understanding so that people might be better equipped to protect themselves. Your persistence with analysing the GFC hardly comes across as the consequence of a depressive illness as has been implied – not to me anyway. It does show an intent interest in society, however, which is a good thing. The more expertise on the situation, the better for all. As I mentioned earlier, I gain significantly from your well-informed opinions as I’m sure many others do. Is it not through saturation of a topic that we are educated?

    The GFC might not be everyone’s cup of tea but people have choices. No one is twisting arms forcing us to read your posts. And as far as bad news and negativity is concerned, the topic of torture on another thread versus the GFC? Torture wins hands down in the negativity stakes IMHO. So WTF? Perhaps its because torture isn’t a personal reality as the GFC is. Live and let live I say!

    Please continue the education!

  107. RN

    Point taken and accepted.

  108. “Please continue the education!”

    It might help John if you referred to more than just a few tabloid papers and a fear-mongering corporate media to back up your points.

    http://www.pbs.org/newshour/extra/video/blog/2009/02/finding_positives_in_bad_econo.html

    I appreciate your nouse…but the constant gloom & doom is not going to transform our political economy. It feeds into a “we’re heading into Depression” perception.

    It’s nothing to do w/ “Boundless optimism” but rather realistically looking for ways to create alternative lifestyles and/or find pathways to cope w/ this unfortunate set of circumstances that has arisen from unbridled greed by some in our society, particularly at the highest echelons, & a lack of appropriate regulation of various financial institutions.

    “I’ve been asked by a number of people to post some stuff examining the problems in greater detail for educational and reference purposes.”

    So this is what you consider as educational?:

    “The Daily Telegraph can reveal the State Government is creating thousands of jobs in China at the expense of Sydney workers”

    Do I need to come to this blog to learn that? I think not.

    Australia doesn’t have a diverse news media…it has a HERD.

    N’

  109. N’

    Far from relying on tabloids my research and education is based on empirical and theoretical understand of economics a large measure in which I’ve gleaned from thinkers like Minsky, Galbraith, Keynes etc as well as great investment thinkers such as Buffett, Graham, Fisher etc.

    I simply present news items and articles in an attempt to illustrate and educate. Sure, I not always going to be right, but at least I’m thinking and trying to make sense of what I know is a very fragile position we’re in.

    Far from being a ‘prophet of doom’ I’ve realise that many of the problems we now face are the result of ignorance, greed and shortsighted thinking of people who positions of authority (government and corporate leaders) along with pretty much the entire financial community.

    Until people realise and understand the hows and whys we can expect more pain. History does repeat, and repeat and repeat and repeat. Hence the reason I find myself repeating the same or similar messages.

    RN understands intuitively why I operate the way I do and for the reason I do. It would be easy to write me off as a fear monger but my motivation is far from self-serving. Good medicine often tastes like crap, and things often need to get worse before they get better.

    Thanks RN and Joni for acknowledging my position.

    And if I do sometimes get up people’s noses all the better, it means they’re being forced to think and that’s not always comfortable. The aim of education, in my opinion, is to teach people how to think and that means taking the blinkers off and not shutting them.

    And no N’ I’m not angry with you or your comments I respect you too much to hold a grudge. It’s simply not my style. You’re expressing what you think and feel.

    It should also be noted that I’ve been predicting many of the current event well before the tabloids started reporting on them.

  110. RN

    “I gain significantly from your well-informed opinions as I’m sure many others do. Is it not through saturation of a topic that we are educated?”

    Thanks for renewing my faith.

  111. N’

    We should all be feeling somewhat outraged when we hear stories like this.

    Greed and hubris bring down Babcock & Brown
    http://www.theaustralian.news.com.au/business/story/0,28124,25183582-643,00.html
    FRIDAY the 13th will be marked in the corporate history books as the day the house of Babcock & Brown finally imploded.

    After years of “smart” deals aimed at generating billions of dollars to bankroll the massive salaries of the high-flying executives that ran the company, the demise was sudden and sharp. It took a decision by a group of subordinated noteholders in New Zealand to vote against a special resolution that finally triggered the appointment of voluntary administrators to the group

  112. John,

    Cooincidentally I was just reading that article and was about to post a link to it here too!

    What’s happened at Badcock & Brown is a bloody disgrace and is symptomatic of the conduct of many of these high-flying execs both here in Australia and abroad.

    12 months ago B&B was on the “must have” list of Australian equities for local investors. Now look at it..

    Yet the head honcho still walks away with $40m..

  113. It’s nothing to do w/ “Boundless optimism” but rather realistically looking for ways to create alternative lifestyles and/or find pathways to cope w/ this unfortunate set of circumstances that has arisen from unbridled greed by some in our society, particularly at the highest echelons, & a lack of appropriate regulation of various financial institutions.

    I assumed that’s what John was doing, N. John is waving, not drowning. There is a present, a past, and a future to the thing. I’m not sure why you want John to be ‘herded’…if you explained a bit more about your ‘normatives’, perhaps the cross-fertilisation of ideas might produce a spectrum of LIGHT and avoid the perception of contagion.

  114. “It should also be noted that I’ve been predicting many of the current event well before the tabloids started reporting on them”

    I remember John’s predictions from Blogocracy, and shouted down he was there as well – this is precisely why John stands out from the herd.

    History does repeat, and repeat and repeat and repeat. Hence the reason I find myself repeating the same or similar messages:

    Display Text

  115. I’m not sure if that link worked, here it is again:

    http://makethemaccountable.com/podvin/street/020224_LeadingLambs.htm

  116. reb, on March 14th, 2009 at 9:29 am Said:

    John,

    Cooincidentally I was just reading that article and was about to post a link to it here too!

    Absolutely reb, and much of my anger is aimed at the amount of deregulation that’s being going on over the years and now here we are being confronted with the results almost daily.

  117. I’m still surprised that it’s not called for what it is: looting. The whole premise of looting is to join markets in their Ponzi stage with a view to bankruptcy being a backstop, having absconded with the loot, not gambling on their long-run success. Mucho tunnelling and looting in the shadows and the underground economy, err off-shored economy, err shadow banking, err poorly regulated whole economy, and who knows where the loot ended up, to be used as down payments in the new ‘optimism’ of cheapened asset prices.

  118. RN, on March 14th, 2009 at 12:37 pm Said:

    This is the type of thing that makes my blood boil.

    “WALL STREET TREACHERY

    Leading The Lambs To The Slaughter”

    Over the years I’ve learned how these types think and you’d be amazed at how ruthless and cunning many are in the financial community in general. Much of the problem besides greed is the incentive structures themselves and huge amounts that are on offer for taking huge and unnecessary risks. Even if you fail, you can often walk away with millions. Trouble is, the money usually comes out of the pockets of those least able to afford it, like investors and workers etc.

    Offering misleading information is so easy to do when people are looking to make quick and hefty profits.

    I don’t know how many times I’ve heard stories, and have indeed witnessed the results. For example, a CEO gets it into his head that he needs to reduce costs immediately lets say 10% it’s almost a given that the quickest and easiest ways is to get rid of libailities in the form of labour costs. No messing about with improving efficiency, because time is of the essence, simply because he and his fellow senior managers want to secure their hefty bonuses. And there’s no reviewing the fact that it was these people in the first place that allowed costs to blow out and service/product standards to deteriorate.

    There is so much more that goes on that meets the eye that I could write in great detail about it.

    Legion

    John is waving, not drowning”

    Lol you’re spot on. I just find it really really hard to sit back and say nothing.

  119. RN

    You reminded me of an old letter where I offered some predictions based on what I was seeing.

    Workers Online
    John Bares All
    02 December 2005

    My philosophy? I assume the very worst is possible then go about protecting yourself as much as possible from the potential downside, especially when times are good.

    I think it is much safer to be cynical and essentially defensive in nature when looking at economic realities – the damn thing is so hard to predict. Let’s face it, we have had an extremely good run over the last decade, and eventually all good things must find a balance.

    None of this is rocket science, it simply takes into account the type of outcomes that seem typically associated, historically, with economic ‘boom’ and ‘bust’ cycles (in other words, generally predictable dynamics). The problem as I see it is ‘when life is good we tend to forget past horrors, until once again reminded through painful experience that life does have checks and balances’.

    I think we are now just seeing the tip of the iceburg when it comes to the reporting of corporate scandals, and the only reason many of these cases have remained largely undetected (except for the spectacular collapses such as OneTel and HIH) is because we have had it so good (economically) for so long. When cash (supported by excessive lending and borrowing) is freely flowing and everything looks rosy we have tendency to overlook any negative long term-consequences that may be lurking around the corner (life is good , so who gives a shit!).

    However, when the tide goes out and the economy slows, we should start getting a pretty good indication as to who the patsies and sharks have been.

    There also seems to be an emergence of what can only be described as an ‘unholy alliance’ between business and government, and unfortunately our pollies are not the savvy dealmakers they may think they are.

    In my limited opinion, the mechanics of business and politics are worlds apart – just look at the deals being brokered between the NSW government and private enterprise – unintended consequences are rife and proving to be very expensive lessons. It is clear here who the patsies are, and it is not the private deal makers.

    As for the the housing market, it should throw up some mouth watering bargains for the savvy bargain hunter, as many lenders are now trying to recoup money from people who overextended themselves by borrowing in a overheated market.

    I am also convinced that Mr Howard has tried to put the cart before the horse by trying to introduce his IR reforms in their current form. In fact, if he focused on addressing major corporate governance issues, red tape, and taxes, by the time he got around to addressing IR, the glaring holes and opportunities for abuse would probably reverse his thinking drastically (couldn’t help having one last dig about IR).

  120. John. Just in case you haven’t already read it, a nice little article by Shaun Carney of The Age at:

    http://www.theage.com.au/opinion/chasing-their-tails-20090313-8xx7.html

    The sad truth is that the Liberals have gone from having the most explicit and thoroughly documented stance on industrial relations — the labyrinthine WorkChoices — to having none at all.

    Or that is to say, they have two incompatible stances on industrial relations that have created an internal stand-off.

    ps..thankyou to Reb for explaining the blockquote thingy..hope it works!

  121. And as a double ps..it seems that I mucked it up.

  122. Lol Min, they never had a clue an still don’t. How true.

    “The confusion in the Liberals now over industrial relations can be traced to the lack of discussion on policy during John Howard’s final term.”

  123. John McPhilbin, on March 14th, 2009 at 4:11 pm

    Mmmm…would that include a failure to have an explicit policy on ‘succession planning’, which is integral to the well-functioning of any business? That lack seems to run the gamut of portfolios, and a failure to build depth into any kind of training for success(ion) program. Indeed, one might argue that the Liberals had been dysfunctional for quite some time in promoting the elimination of heirs apparent or anything other than ‘yes people’.

  124. Legion

    It does seem to reflect that way, doesn’t it.

  125. Agreed Legion and John. In a nutshell. Hence the dysfunction re formulating policies as evidenced by the constant speculation about the who will be the next leader. Very obviously a strong leader would have his ideas nutted out and this person would have been voted as leader due to these ideas. To me, the above is why Turnbull is a disappointment. I expected more. As hubby says, He’s a fizzer.

  126. Where have the billions gone?

    Some claim that the subprime crisis has made only a minor contribution to the GFC. Its the Wall Street Wizards who are really responsible for bringing the capitalist system to its knees. These WC magicians (thieves in suits) have wreaked their destructive forces for the sake of power and greed:

    http://www.deepcapture.com/a-scandal-unfolds-and-the-media-mob-scampers/

    http://www.dailykos.com/storyonly/2009/3/5/16720/74815/703/705113

    Bush was in it up to his eyeballs. How many will suffer?

    Why did the wizards do it? – Because they could.

  127. Useful links RN.

    I reckon the short-selling merchants behind a good deal of the non-sub prime corporate collapses that have occurred to date need to face some serious jail time for naked market manipulation.

    Twenty or so years in a 12 X12 cell with a big bald bloke named Bubba (himself inside for sexual offences with animals) would do crooks like Jim Cramer the world of good. It might go some way to paying the bastard-out for his crimes.

  128. Evan,

    I see these articles as must reads for anyone desiring the truth. There plenty of evidence to support the claims made. Cramer even admits to selling that which did not exist. These merchants are sickos for sure.

    For the pain and suffering caused to so many, lock them up for the remainder of their miserable little lives. Greed is a like a virus, it possesses no fear and knows no boundaries, it mutates to avoid destruction, it will continue until it kills its host cells. If the host defences are overwhelmed or fail to detect it, the virus kills the organism – then it moves on to the next victim. In the case of Cramer and his cronies, many victims have succumbed to their greed.

    Bubba is good!

  129. “I remember John’s predictions from Blogocracy, and shouted down he was there as well – this is precisely why John stands out from the herd.”

    Yes, John & I had similar experiences in that respect.

    Interesting you should mention “empirical studies” John. I’ve been reflecting on “Knowledge innatism” of late…what I referred to as “genetic memory” in past comments. Rather than all knowledge deriving from our social & environmental experiences. And where this fits into the concept of “biological determinism”.

    The Feral Child:
    Myths, legends, and fictional stories have depicted feral children reared by wild animals such as wolves and bears. Famous examples include Ibn Tufail’s Hayy, Ibn al-Nafis’ Kamil, Rudyard Kipling’s Mowgli, Edgar Rice Burroughs’s Tarzan and his son Korak, and the legends of Enkidu and Romulus and Remus.

    Legendary and fictional feral children are often depicted as growing up with relatively normal human intelligence and skills and an innate sense of culture or civilization, coupled with a healthy dose of survival instincts; their integration into human society is made to seem relatively easy.

    These mythical children are often depicted as having superior strength, intelligence and morals compared to “normal” humans, the implication being that because of their upbringing they represent humanity in a pure and uncorrupted state: similar to the noble savage.

    Alternatively:

    The Enigma Of Kaspar Hauser

    One wonders if too many of the Wall Street suited game players see themselves as “noble savages?”.

    Or perhaps they are merely fed a croak of sh*t…taught to find the beast in themselves…use the market like a jungle…to feast upon their prey? Feed, or be fed upon.

    N’

  130. Yes, useful links RN.

    I find this site worthwhile:

    OpenSecrets. org is your nonpartisan guide to money’s influence on U.S. elections and public policy. Whether you’re a voter, journalist, activist, student or interested citizen, use our free site to shine light on your government. Count cash and make change.

    http://www.opensecrets.org/

    SHOW ME THE MONEY

    N’

  131. I’ve also begun thinking more about the relationship between supermarket lobbyists, political parties & unions…the pros & cons…and the potential for exploitation of workers (including family) in small businesses. And the growth of supermarkets in Australia…& what will become of them in the wake of economic collapse.

    Here’s an interesting piece:

    CounterPunch Diary
    The Parable of the Shopping Mall
    By ALEXANDER COCKBURN

    http://www.counterpunch.com/

    In the same way that coastal cities like Boston finally realized the asset of nineteenth-century quaysides with their warehouses and customs depots, today’s failed or failing malls can be reconfigured, converted to mixed use, with residential housing, public spaces and constructive social uses. In the Bayshore even now I see groups of the mentally ill being brought along for an outing in a place that’s sheltered, still physically safe, and equipped with bathrooms, and plenty of space with chairs or benches where they can relax.
    (excerpt)

    All things change.

    Carry on John. I certainly harbour no grudges.

    Social upheaval…transformation…is not easy to cope with…but too oft the preservation of archaic structures & rigged systems can be more detrimental to the health in the long run. Sometimes the walls need to be torn down…or redesigned. I knew this on RTS.

    Sometimes I have momentary lapses of calm…as my mind attempts to ADAPT to the changing circumstances…:)

    and like I mentioned previously, I have dread flashes of:

    The Committee of Public Safety (French: Comité de salut public), set up by the National Convention in July of 1793, formed the de facto executive government of France during the Reign of Terror (1793-4) of the French Revolution. Under war conditions and with national survival seemingly at stake, the Jacobins, under Maximilien Robespierre, centralized denunciations, trials, and executions under the supervision of this committee of first nine and then twelve members. The committee was responsible for thousands of executions, with many high-profile executions at the guillotine, in what was known as the “Reign of Terror.” Frenchmen were executed under the pretext of being a supporter of monarchy or against the revolution. The Committee ceased meeting in 1795.
    (wikipedia)

    N’

  132. Danton

    N’

  133. White house channels Gordon Gecko:

    Lawrence H. Summers, the White House economic adviser, calls it “the paradox at the heart of the financial crisis. “

    “In the past few years, we’ve seen too much greed and too little fear; too much spending and not enough saving; too much borrowing and not enough worrying,” Summers said Friday in a speech to the Brookings Institution. “Today, however, our problem is exactly the opposite.”

    In remarks to a private dinner at the U.S. Chamber of Commerce on Wednesday, Summers was even blunter, according to an attendee: “Before, we had too much greed and too little fear. Now, we have too much fear and too little greed.”

    Wish they’d make up their mind. (Someone should tell Kevin Rudd though.)

  134. Don’t be distracted Tony. You deserve better.

    Intensity.

    Contraction.

    Countdown.

    N’

  135. Morning Nasking. (Or should that be: VJ-N’?)
    😉

  136. Fear not Tony. We are the 12.

    2001 A Space Odyssey Opening

    N’

  137. If anyone is seeking to understand the Liberal party’s approach to industrial relations and political methodology, one only needs to have a quick read of George Orwell’s 1984.

  138. “In the past few years, we’ve seen too much greed and too little fear; too much spending and not enough saving; too much borrowing and not enough worrying,”Summers said Friday in a speech to the Brookings Institution. “Today, however, our problem is exactly the opposite.”

    All of a sudden the pendulum has swung and after 30 or so years of “too much greed and too little fear; too much spending and not enough saving; too much borrowing and not enough worrying” and all of a sudden he’s calling for a reversion back to the other extreme. Is that what saying Tony?

    It’s part of the boom-bust cycle is it not? Rudd’s made it clear , in my opinion, we’re searching for a balance and want to avoid reaching extremes.

  139. Geez Tony, that was a big reach from you wasn’t it. He went on to explain:

    “An abundance of greed and an absence of fear on Wall Street led some to make purchases — not based on the real value of assets, but on the faith that there would be another who would pay more for those assets. At the same time, the government turned a blind eye to these practices and their potential consequences for the economy as a whole. This is how a bubble is born. And in these moments, greed begets greed. The bubble grows.

    “Eventually, however, this process stops – and reverses. Prices fall. People sell. Instead of an expectation of new buyers, there is an expectation of new sellers. Greed gives way to fear. And this fear begets fear. …

    “It is this transition from an excess of greed to an excess of fear that President Roosevelt had in mind when he famously observed that the only thing we had to fear was fear itself. It is this transition that has happened in the United States today.

    “What is the task of policy in such an environment? “

  140. Tony

    “Wish they’d make up their mind. (Someone should tell Kevin Rudd though.)”

    Don’t worry yourself Rudd’s across it and trying very hard to help develop policies to address the imbalances.

  141. Migs

    What are your thoughts on the ‘affordability of housing and rent’s’?. I’m not sure you’ve looked at it from that angle.

  142. ..wrong blog oops

Comments are closed.

%d bloggers like this: