Jun 05 2008
Now that we’ve seen the collapse get into high gear over the last ten months, its time to revisit the great game that goes on in Wall Street after every bubble bursts — its called the Bailout Game, and you and I have been seeing lots of that since Bear Stearns’ hedge funds blew up in July of 2007.
Understanding the historic relationship between the Fed and its member banks / big Wall Street banking is essential in figuring out what’s transpiring as we speak.
Mar 21 2008
We’ve continually warned about the bailout addicted U.S. Another voice of clarity and reason all along has been Bill Fleckenstein. As usual, he nails it in his latest commentary, “Catering to the Bailout Nation.” BTW, Bill’s recently released book Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve – is definitely worth a read! We wonder — has anyone ever been un-knighted? Can they do that?
Any reasonable person knows that bailouts beget more (and larger) bailouts. Like a drunk having another drink, it’s just going to make the hangover (and resulting inflation) even worse.
Also, ask yourself this one – why are big Wall Street banks getting bailed out (with taxpayer money) – when the 5 largest recently paid themselves 39 $Billion in bonuses?
Think long and hard about the answer to that one – because you are paying for it – in overt taxes, and the great hidden tax – accelerating real inflation.
Mar 17 2008
Seems like Sir Al can’t try hard enough to absolve himself from the monster he created with the tools available via The Creature From Jekyll Island. Here are our thoughts on Honest Al’s latest comments.
We will never have a perfect model of risk
(By Alan ‘Master of obvious” Greenspan)
The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.
Since World War II? Try since the Great Depression. This situation is as if 1930 met 1973 and used a fertility clinic to produce sextuplets.
Home price stabilisation will restore much-needed clarity to the marketplace because losses will be realised rather than prospective.
It will, however, not restore clarity to Sir Al’s amorphous use of the English language to convey something without really saying anything. Look, the pricing mechanism has been so badly distorted — and not just in housing — it’ll take a substantial cleansing to restore any sense of rational order. The Fed’s meddling will do nothing but continue to subsidize the fantasy that is “price” across many asset classes, housing included. Al should know this.
The major source of contagion will be removed.
How so? By propping up prices artificially as is being done as we speak?
Financial institutions will then recapitalise or go out of business.
With whose wealth? With wealth confiscated from dollar holders via every more inflationary credit expansion!
Trust in the solvency of remaining counterparties will be gradually restored and issuance of loans and securities will slowly return to normal. Although inventories of vacant single-family homes - those belonging to builders and investors - have recently peaked, until liquidation of these inventories proceeds in earnest, the level at which home prices will stabilise remains problematic.
Trust may be restored, but that’s badly placed trust if it is through yet another bailout. As for home prices, any price stabilization that comes from bailout is merely fantasy stabilization. With the Fed fixing the price of money, we’ll — expect as many dislocations as you would from some arbitrary panel fixing the price of Corn, gas, or anything else. But this is at the heart of the central planning meddlers in the Fed and Treasury (and their many supporters), who trust price fixing well ahead of free market allocation of scarce resources, some out of misguided economic beliefs, but as many if not more out of being directly enriched by being able to tap into the Fed printing press and create massive personal profits form the privileged.
The American housing bubble peaked in early 2006, followed by an abrupt and rapid retreat over the past two years. Since summer 2006, hundreds of thousands of homeowners, many forced by foreclosure, have moved out of single-family homes into rental housing, creating an excess of approximately 600,000 vacant, largely investor-owned single-family units for sale. Homebuilders caught by the market’s rapid contraction have involuntarily added an additional 200,000 newly built homes to the “empty-house-for-sale” market.
Uhh… Al? How nice of you to comment from the sidelines as if you weren’t the head cheerleader behind this mess? Homeowners were lured in by none other than You, pal. You told everyone that housing was not in a bubble, and denied being able to rationally indentify one even if it was beating you over the head with a lead pipe. You were the one that suggested ARMs were a good way for consumers to go. You were the one encouraging everyone to help the economy by borrowing and consuming more and more.
Home prices have been receding rapidly under the weight of this inventory overhang.
Created by the artificial oversupply of easy mortgage credit, created by YOUR POLICIES!
Single-family housing starts have declined by 60 per cent since early 2006, but have only recently fallen below single-family home demand.
Sep 19 2007
Interest rate pro, James Grant, who is among the few who predicted accurately that the credit markets would be in for dire problems well in advance of the current mess, has a WSJ review of Greenspan’s new biography, “The Age of Turbulence“. We’ve not yet read the book ourselves, so we can’t fully comment other than to say that Grant has been reliable on interest rates and economic observations for many years now, and has shown a good deal of character in remaining steady despite his opinions causing mainstreamers to throw flack his way for being such a wet blanket on the credit bubble party.
We can, however, agree with Grant’s non book-specific implied conclusions about Greenspan and all central bankers: In the end, they are nothing more than price fixers and central planners, and given the disruptions and massive dislocations invariably caused by fixing the price and supply of credit and money, probably deserve less respect than any other bureaucrat assigned such a role.
