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EJ
09-29-08, 10:15 PM
http://www.itulip.com/images/titanicindock.jpgErratum to``Calculation of a capsizing rate of a ship in stochastic beam seas''

Why it's hard to explain the nonlinear Fokker–Planck equation for the joint probability density function of roll angle and velocity to politicians and their constituents on a sinking ship

An economist friend who works for a fund writes to me after today's crash:
Politicians are listening to their constituents who think TARP is something that they cover their barbecue grill with.

If this spreads to Europe, the dominant trade will be cans of tuna fish and bags of rice at the local supermarket.
I replied.

Tuna and rice? Always the optimist! We won’t be able to afford it.

Paulson blew it. He thought Congress was easy to roll over on a squeeze play. Didn’t everyone on Wall Street always do that for him in the past?

When Newt Gingrich and Nancy Pelosi both oppose your legislation, you’ve screwed up. Big time.

Today global markets see how the American political system manages a serious extended financial system crisis: not well.

Then it dawns on them... so that’s what happened turn the 1930 debt deflation into The Great Depression! Democrats and Republicans confused policy and ideology in an election year.

Now that we've hit the iceberg shall we deal with the flooding in the engine room or argue about how we’re going to bail out the ship? Let's propose a bailout that only rescues the 1st class passengers, or appears to. Clever!

Then let's fuss, for political points, about who should do it or if we should bail at all. Perhaps the ship will right itself – after all for years many of us have claimed that free ships always self-correct. Who needs regulations and bailouts?

No, let’s argue about how we hit the iceberg. Why were we going so fast among ice bergs? Why did the last shift leave the binoculars in the locker? Where were the regulators?

Lets argue and pontificate and grandstand until we capsize.

Where’s the music anyway?

Speeches delivered against the bill were brilliant and impassioned, the speakers honest and well intentioned. Was anyone for it?


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</object>

But is the choice really between bread and freedom? Or about bread and bread machines and freedom all conflated?

It is true that the bread makers deserve to fail but also that their failure may lead to economic catastrophe and war.

Fair? Of course not. Even Paulson dared not name the risk of looming catastrophe and war in his sales pitch to save Wall Street. What if he, as an American, truly cared more about the former than the latter? How could he express it soas to be believed? That is his personal tragedy. We'll never know.

Our failure was to give them so much power over the economy to begin with. That is our fault, our contribution to the crisis.

Well read dictators worldwide, who understand the mechanics of financial crisis and debt deflation, are cheering. They know how this can turn out for them – well.
"Up to today not even President Hoover has been able to work [economic] miracles," [he] said last week, "and he is the most powerful man in the world at the head of the richest country in the world." Facing [him] in a respectful crescent sat Italian Capital & Labor, not metaphorically but in solemn fact. This was the inaugural session of the new National Council of Corporations. It was to hear the Prime Minister's personal examination of Depression, his prophecy of when Prosperity will return.

"Not All Can Be Saved!"

"In our usual blunt, precise Fascist style, without euphemism and without reticence, we admit," said [he], "that our general economic situation has grown worse since last October, when the American crisis burst with the violence of dynamite. . . .

"The Fascist Government is not passive in the face of the present difficult situation, as vile anti-Fascist scandalmongers say. The government has its hand on the pulse of the nation and hears distress signals from whatever source they come. But not all can be saved and some indeed deserve to go to the bottom. The majority of the latter belong to the category—enormously increased during and after the War—of business improvisers, men more reckless than enterprising, acrobats of industry and finance, men supremely encyclopedic in their initiatives."

"Pyramid Trusts Flayed"

"The mountebanks of the economic world," [he] continued, looking several such on the Council benches directly in the eye, "complicate everything with innumerable companies in a chain system, with boards of directors composed of nonentities who exercise no true leadership, often with faked balance sheets and non-existent dividends. They are the true, authentic, most dangerous kind of anti-Fascists because they speculate on the good faith of the public. Prison is small retribution for their misdeeds. They sow such infinite ruin and misery and they do such harm that they truly deserve Death!

"Some examples have already been made, but henceforward such men will be shown even more clearly that the public can not be defrauded and hard-earned savings cannot be misused with impunity."

- Report on a speech by Prime Minister Benito Mussolini, "No Miracles Today," Time Magazine, Oct. 13, 1930
I was not in favor of this bailout. I am not optimistic that the next one will be any better. Remember, the Fannie Mae and Freddie Mac bailouts were supposed to prevent nationalization. That's where Bernanke spent his credibility.

After studying the history I have developed a degree of fatalism about it that no politician can afford.

Think the US political infighting is ugly? Wait until the US economic crisis spreads to autocracies and "globalism" collapses in a heap of remonstrance and acrimony.

Look tomorrow for "Crash Course: The inexorable logic of the American political economy"

What was it Churchill said?

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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phirang
09-29-08, 10:35 PM
EJ, are you saying we're going to "repatriate" Iran's gas revenue now?:)

grapejelly
09-29-08, 10:52 PM
there *will* not be a bailout. You can be sure of that. There will be one, then another, then another. A wearying series of bailouts.

This one was very unimaginative because it simply bailed out the Wall Street fatcats. And it really is true, that is what it would have done.

The next one has to make more political sense. It has to buy off homeowners and it can't do that in a way that makes people who didn't over-speculate feel like those who did are getting rewarded.

That's the problem with a political solution. Most people did not go and borrow more than they could ever pay back. So they have no sympathy for their tax dollars going to to those who did.

People don't know that the Federal Reserve is responsible for this great evil. But they do know that $700 billion equals about $2700 for every man, woman and child in the US. And that's just for starters.

Thing is, the bailout is proceeding anyway. The Fed can print unlimited amounts of cash. Because of the value of collateral collapsing, every other central bank has the same problems and they are also printing money (or will be shortly).

So the US dollar won't fall relative to other currencies.

And wonder of wonders, because of panicking people calling their broker or their hedge funds and ordering "sell everything" there appears to be mountains of "cash" being worked out of the system and parked into US government treasurys.

So this is very convenient. The US government finds its bailout cash appears like magic, provided by panicked shareholders and bondholders "seling everything" and thereby financing the enormous deficits incurred in these bailouts.

Only trouble is, the future of the US economy. Because all that money is leaving productive business and going into non productive cash.

And what happens when these treasury holders get a little less timid and want more than .4% return on their money? Maybe they'll sell their "cash" and buy something else...like gold, maybe?

But the public sector crowding out the private...doesn't that sound just like Roosevelt's National Reconstruction Agency? It will happen whether or not Congress votes, because the Fed can do pretty much whatever it wants to do. Witness the overnight expansion of various repos and what-not to $600 billion, extended to foreign central banks?

I mean, who voted on that? Wink wink?

And there are bound to be enormous rallies that will happen also, because this money in the sidelines will panic-buy just as readily as they panic-sell. Although the foolish and stupid no-short-sale rule prevented short covering and therefore of course caused the prices of "financial" stocks (including GM and Ford) to plummet without any buyers being around as there would have been in ordinary times.

But most Americans don't know a short seller from shorts in the cellar, so they don't know how badly their government has messed this up. Easy pickins' to blame the "free market".

The reality is, when you have a backstop to your losses, and unlimited credit, asset prices will go out of site and leverage will go to the moon. It will someday come back to earth, and when it falls, boy does it cause an earthquake.

But as long as we have managers in banks rather than partners investing their own money (like we used to have when Wall Street investment banks were all private partnerships) all they care about is their golden parachutes and this year's bonuses. (Or is it boni, the plural of bonus?)

It is as far from a free market as you can get. Heads they win, tails you lose. And now that it's all come crashing down, they expect taxpayers to honor their part of the bargain.

When I was a kid, when the city wanted a higher budget, they closed the libraries first. Why? Because that had the most impact on the more affluent, concerned moms and dads and would get them to call up their city councilman and say "raise taxes, we want our libraries open again."

Today's shenanigans look to me like the same thing. They are threatening dire straits if "we" don't pass this huge bailout? But what do I care if some investment banks and hedge funds go bye-bye?

The tragedy is that Goldman Sachs and the rest just slide right into "bank holding companies" and the terrible unethical and immoral financial exploitation continues.

And still they blame "the free market" and "lack of regulations."

EJ, you've said as much before and I completely and totally disagree with you. I was disappointed when even Doug Noland came out in favor of the bailout. I hope you are not in favor of it, but it sounds like you are (or were).

bart
09-29-08, 11:21 PM
"Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of Government except all those other forms that have been tried from time to time."
-- Winston Churchill


"You have enemies? Good. That means you've stood up for something, sometime in your life."
-- Winston Churchill



"Men stumble over the truth from time to time, but most pick themselves up and hurry off as if nothing happened."
-- Winston Churchill


"The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery."
-- Winston Churchill


"You have been given the choice between war and dishonor. You have chosen dishonor, and you will have war."
-- Winston Churchill to the English Parliament, 1938 after the English Parliament's 1938 appeasement in Czechoslovakia

"There is no worse mistake in public leadership than to hold out false hopes soon to be swept away. The British people can face peril or misfortune with fortitude and buoyancy, but they bitterly resent being deceived or finding that those responsible for their affairs are themselves dwelling in a fool's paradise."
-- Winston Churchill

Contemptuous
09-30-08, 12:00 AM
Then it dawns on them... so that’s what happened turn the 1930 debt deflation into The Great Depression! Democrats and Republicans confused policy and ideology in an election year. ... Now that we've hit the iceberg shall we deal with the flooding in the engine room or argue about how we’re going to bail out the ship?

What I gathered from EJ's post is that the current stalemate blocking movement on further emergency credit infusions contains hazards along with all the abhorrent aspects which have been much discussed instead. The hazards having to do with further credits withheld might be equivalent to a faith practitioner insisting that blood transfusions on a patient wheeled into critical care ward are "artificial sustenance" and the haemorrhaging patient must "find his own natural blood level". I may be completely wrong here, but as far as I can tell, in the past week I've read some real hints or even open acknowledgments, not only in EJ"s post above, but also in posts of Jim Sinclair, of Ty Andros, and of Bob Hoye that "laissez faire" (means forget about any more "liquidity" games and let the thing follow it's natural crash course) in the face of any of the largest credit busts in history does not actually have any more compelling a case going for it as being a supposedly more prudent or constructive strategy.

A corollary is that all the discussion going on here about the "evilness of the Fed, and their singular responsibility for this mess", is likely a fallacy - as Bob Hoye examines - vilification of central bankers on watch at the advent of major busts has been a standard reaction accompanying all busts prior to this one, where any central banker unfortunate enough to be on watch at the arrival of these events was referred to as a candidate for tarring and feathering, as though their particular attributes were the prime source of the problem.

Hoye points out that the factors creating most of the current horrorshow have existed virtually identically as preamble to each bust cycle long before the Federal Reserve was even a twinkle in any banker's eye. So much for the "cabal" theory of 20th Century central bankers having "engineered" this particular go-around, as it's largely indistinguishable from all the previous purportedly "engineered" booms / busts - that would grant to Central Bankers an almost god-like ability to engineer results down throughout history. The take-away from that is that all of the constant vilification of Bernanke and Paulson here perhaps is ignoring a simple historical parallel?

Clearly we are all looking with unquestioning conviction at the US Fed as being the singular architect of the current massive bust. Well, they are, but the core insight alternatively might be, that if what they have accomplished here is the sum of 95 years of currency abuse, the summary abolishment of their administrations of credit at this most ugly of junctures, is more likely to kill the patient outright than effect an instant cure. And in this macro case "kill the patient" involves a whole host of hidden additional costs which none of the proponents of this idea here seem to have explicitly quantified. In the context of that insight, the current failure to agree upon a bailout is a bad thing, not a good thing. The terms of the bailout may be all wrong - but anyone arguing the bailout itself is wrong is presenting a lot of categorical assumptions as established facts.

Such "Calvinistic" notions of what is required to restore health to the economy assume axiomatically that it is the Federal Reserve system which is unique to this dysfunction. My sense is that within EJ's own comment, and as I have also seen within the comments from Sinclair, Andros and Hoye, adopting a dogmatic position on the role of ready credit at the height of a credit implosion would be not only be incorrect, but also reckless. The Federal Reserve has not been unique. Every credit bust since the 1600's has had central bankers attempting to mitigate it's severity, just as is our current Fed central bank "90 year experiment" now.

Credit abuse may be the common denominator of all these former central banks and provides an easy and correct target for disparagement, but a summary withdrawal of credit in a yawning credit void strikes me as an idea this community should have discarded at the outset. Therefore all the considerable noise here about the "evil machinations" of crony central bankers funneling money to these crony failing banks (they are, but that's not the point) fail to suggest where else the credit infusions can be funneled to alleviate the cardiac arrest occurring in global credit. I may be wrong, but a hint of this is more than apparent in the extract from EJ's post above. In a sinking lifeboat, the boat's passengers need a dogmatic purist on the subject of "liquidity" like a hole in the head. The pragmatist would appear to be more useful.

Hoye (commenting wryly on the "historical context"):

<< It seems that part of the tout at the top of the mania includes a celebration of whatever central banking or treasury system that happens to be in place. This also has included celebrating the treasury secretary as the "greatest since Alexander Hamilton". The two best known have been Andrew Mellon and Robert Rubin. Actually, each "earned" the accolade by merely being in office when an era of financial innovation and mania brewed up. Mellon during the 1920s and Rubin during the 1990s. On the mania that climaxed in 1720 John Law, as the first really reckless central banker, was celebrated during the boom and reviled during the bust. Naturally, with the recrimination and revulsion that goes with any post-bubble contraction the prevailing system will be criticized during the contraction. With the fullness of this failure the first stage will likely be an ad hominem attack on the personalities running the Fed and Treasury. >>

bart
09-30-08, 12:47 AM
A corollary is that all the discussion going on here about the "evilness of the Fed, and their singular responsibility for this mess", is likely a fallacy - as Bob Hoye examines - vilification of central bankers on watch at the advent of major busts has been a standard reaction accompanying all busts prior to this one, where any central banker unfortunate enough to be on watch at the arrival of these events was referred to as a candidate for tarring and feathering, as though their particular attributes were the prime source of the problem.


A little wild there aren't we? Singular responsibility - hardly.

Do you approve of all of the particular attributes of central bankers and their actual historical record?
Do you approve of most of the biased and silly things in the bailout or rescue bill that wasn't passed today?
Do you approve of the other factors that led us to this point, such as slime ball politicians and greed as virtually a national pastime?
Do you approve of the ends justifying the means?

Of course you don't, and of course central bankers are not the only reason or fall guy. But they sure are amongst the top five in my book.





The take-away from that is that all of the constant vilification of Bernanke and Paulson here perhaps is ignoring a simple historical parallel?

Yes, the historical parallel is that central bankers by both their omissions and commissions throughout history have been one of the primary causes of massive messes. To underweight that or try and lessen their very real responsibility is unwise.

Even Keynes commented in the area:
"A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him".
-- John Maynard Keynes

I completely refuse to justify any of their acts or lack of them, and the same applies to other groups too... but history is very clear about what happens when bankers have lots of power and can't say no and can't be sound bankers and don't warn, etc, etc, etc.





...
And in this macro case "kill the patient" involves a whole host of hidden additional costs which none of the proponents of this idea here seem to have explicitly quantified. In the context of that insight, the current failure to agree upon a bailout is a bad thing, not a good thing. The terms of the bailout may be all wrong - but anyone arguing the bailout itself is wrong is presenting a lot of categorical assumptions as established facts.


Yes, the proverbial S has HTF.

But any bailout or rescue must reflect the basic good values of the culture, must not be full of pork, must have adequate checks & balances, must not continue with the BS of crony capitalism and politics as usual, etc.

Anyone supporting a bailout or rescue that does not generally meet those and other parameters has undisclosed vested interests or similar and I'm not buying in.
I don't in anyway have to have a perfect plan... and thanks but no thanks on more of the same and in large quantity.




Therefore all the considerable noise here about the "evil machinations" of crony central bankers funneling money to these crony failing banks (they are, but that's not the point) fail to suggest where else the credit infusions can be funneled to alleviate the cardiac arrest occurring in global credit.

I'm listening for yours, or even links to many other and better plans and elements of plans (Roubini has had some good ones for example)...


And yes, we're playing out history in many of the same ways - very sadly, again. At least more have a clue about what's ahead due to the efforts of folk like EJ... and others like Sinclair and Schultz too.

Contemptuous
09-30-08, 12:59 AM
Hey Bart - nowhere do I come out and say I'm an unqualified supporter of instant passage of the current Paulson bailout bill. No need to land on me here like a piledriver. With regard to all your "do you approve of's" - no, I don't approve and am aligned much as you are. Are you objecting to the ascribing of "singular responsibility" to the FED for this mess, on the part of many other commentators here? Maybe you don't ascribe "singular responsibility" to the FED, but it would appear there is a quite broad consensus among a good few others that it is overwhelmingly the FED's responsibility. Indeed, it likely is - but the point is that focusing on this too much distracts from a potentially much more costly event - uncontrolled decimation of trust in the markets can create a "scorched earth" with much much larger costs even than we are looking at today - contrary to the conventional wisdom that "more inflation will ultimately create far larger costs" - that is not the only way that we can summarily drop into a much larger black hole.

My point about this "singularly toxic FED, was merely that they are a curious mirror of exactly the same debacles from other credit busts spanning centuries when nothing remotely like the FED existed, so whatever they have brought to the event is by no means singular? Agreed? That would also moot the popular idea on iTulip that theirs is a "cabal" which has "engineered" an event to shovel assets into their rapacious maw. I certainly would not put it past their raw greed, but I would put that considerably past their skill to control the colossal tumble which they have unleashed. The tumble can immolate them just as much as the rest of us. So the more fantastic ideas here are standing in the way of understanding the urgency to implement some bailout - and the absence of one can unleash a great deal more destruction yet.

And you write:

I completely refuse to justify any of their acts or lack of them, and the same applies to other groups too... but history is very clear about what happens when bankers have lots of power and can't say no and can't be sound bankers and don't warn, etc, etc, etc.

You may have missed the main point I was trying to make. I don't attempt to justify their actions in abetting or creating the boom / bust - that would be simply foolish. They are readily acknowledged to be a chronic dysfunctional and damaging actor in these events. But the truth today, in 2008 contains enough paradox to dangerously delay our decisive conclusions. That at the advent of one of the largest such busts in history, haggling even just a hair too long, over what iteration of credit infusions may be acceptable, will skirt very close to sinking the boat. That is similar to the principle of TRIAGE. In a disaster, many good people are lost, as the triage can rescue only "the rescuable". There is much truth in this analogy - as we are very arguably quite close to a slide which cannot be arrested. You have to gauge very carefully how much of your principle you are insisting upon, as the fire spreads throughout the house, and your access to the doorway may soon be blocked.


A little wild there aren't we? Singular responsibility - hardly.

Do you approve of all of the particular attributes of central bankers and their actual historical record?
Do you approve of most of the biased and silly things in the bailout or rescue bill that wasn't passed today?
Do you approve of the other factors that led us to this point, such as slime ball politicians and greed as virtually a national pastime?
Do you approve of the ends justifying the means?

Of course you don't, and of course central bankers are not the only reason or fall guy. But they sure are amongst the top five in my book.

Yes, the historical parallel is that central bankers by both their omissions and commissions throughout history have been one of the primary causes of massive messes. To underweight that or try and lessen their very real responsibility is unwise.

Even Keynes commented in the area:
"A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him".
-- John Maynard Keynes

I completely refuse to justify any of their acts or lack of them, and the same applies to other groups too... but history is very clear about what happens when bankers have lots of power and can't say no and can't be sound bankers and don't warn, etc, etc, etc.

Yes, the proverbial S has HTF.

But any bailout or rescue must reflect the basic good values of the culture, must not be full of pork, must have adequate checks & balances, must not continue with the BS of crony capitalism and politics as usual, etc.

Anyone supporting a bailout or rescue that does not generally meet those and other parameters has undisclosed vested interests or similar and I'm not buying in.

I don't in anyway have to have a perfect plan... and thanks but no thanks on more of the same and in large quantity.

I'm listening for yours, or even links to many other and better plans and elements of plans (Roubini has had some good ones for example)...

And yes, we're playing out history in many of the same ways - very sadly, again. At least more have a clue about what's ahead due to the efforts of folk like EJ... and others like Sinclair and Schultz too.

sabocat
09-30-08, 12:59 AM
I couldn't agree with EJ more. He is not advocating socialism, or command economies or anything.

Adam Smith argued markets were virtuous because responsibility and better decision making come with ownership and choice. More importantly, he broke with all previous moral theory by arguing that these virtuous outcomes were associated with prosperity and wealth, not poverty. Smith's great innovation was not a theory of markets, it was a theory of markets that associated wealth with responsibility, ownership and the greater good.

Markets and the institutions that enable them can produce the results Smith anticipated. However, markets can also produce other results. This is as evident in periods and places of extreme laissez-faire as it is in times and places with government intervention. Markets can produce cost-shifting, rent-seeking, asset milking, exploitation, and downright theft just as well as the virtues Smith identified.

The issue then is *not* the false choice between governments and markets. In fact that sort of ideological dogma is exactly what scuttled the bailout bill today (though it wasn't worthy of enactment anyway, being terrible public policy, not that the "no" votes could tell the difference). Insisting on free markets in some abstract Platonic sense is just an inverse of Marx's insistence that prosperity could be secured without markets. Both views are equally dogmatic.

The issue is deciding what values we want to realize and figuring out how government and markets get us there. The arrangements that have been institutionalized over the last 10 years or so (though in some ways dating back to the collapse of the Bretton Woods monetary regime) have resulted in a system that enables people to get rich while gambling with other people's money. The risks associated with such gambling have been socialized. Finding Americans who think this is how things should work is pretty hard. Generally people feel that if you take big risks you should be the one to take big losses. And, of course, if you don't take big risks then you shouldn't be held accountable for the losses of others. These sentiments are expressed on iTulip all the time. I can assure you from extensive direct experience that they are also expressed in union halls and churches across the country.

There are two questions. First, how to resolve the current problems so that we can all get back to the business of living our lives without rewarding people who made bad decisions and, in the case of Wall St., made fantastically destructive decisions. The second question is what institutions have to be in place to secure the outcomes most of us want? It is the case that this requires markets of some sort, but what sort, and how to secure them?

It is also the case that whatever markets are desirable requires governments for them to function. This was true in Smith's time. We now have economic systems that are several orders of magnitude more complex than in Smith's time. Governments were needed then (Smith was overly optimistic because he thought Christian fellowship could play the role we now associate with regulation) and they are needed now.

The only way to figure this out is to greatly improve our ability to articulate what we want out of government and markets. The simple dualistic debate between regulation and markets does not help achieve this goal and has crippled the political and the policy discussion. As a consequence we get to watch Rome burn in real time.

Supercilious
09-30-08, 01:08 AM
Bart, I wanted to post here something about Central Banking in general and the Fed in particular, but I see there is no slot left on the shooting range... too crowded :D

Unfortunately I have to agree with EJ on this bailout. IMHO it's too late to avoid the bailout now, but if something is not done fast about neutering the Fed there will be bailouts after bailouts.

We are hostages and we are being mugged at Depression point. I think it's too late to stop this load of $700b, bit it's not too late for the rest of bailouts

If a vigorous "End the Fed" campaign starts, Ben and Hank will start retreating fast and the markets will calm immediately ... I can imagine Ben saying something like this:

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Contemptuous
09-30-08, 01:26 AM
Bart is not disagreeing with a bailout either - only the terms of the bailout. Just as you are, and just as I am or likely many of us. The only question is - how much time do you think you have, vs. how much time do you really have. You have a conviction, but is that enough to carry the world on the experiment of your conviction, regarding time available? That is the difference between audacity and caution - two very different instincts. Some more cautious ones among us may be looking around at the scale of the toppling dominoes, and thinking - better to be mugged and live to fight another day, than to go down in flamboyant defence of my presumed future libertarian freedoms.

BrianL
09-30-08, 01:32 AM
From talking with people on the younger side (early twenties), this is the sort of rhetoric I hear:

'Most of us have a high school economic eductation that we don't remember beyond supply and demand. We view buying gold or PMs as paranoid. We haven't been through a general downturn like this before as we were too young to get hit by 87. We've been told that social security will be dead before we see anything from it despite paying in for most of our lives. Many of us have grown up totally priced out of the housing market. For a nearly a quarter of our lives, we've been at war in Iraq - always sanitized. Throw in Waco, Ruby Ridge and a variety of other events you have the seeds of a general anxiety about the government.'

Don't get me wrong - there are plenty of younger people who care about this, who have had tough lives, etc. The position above is more representative of the masses - or at least what I am picking up from peoples positions on message boards, in informal discussions, etc.

Frankly, I really get the sense that a lot of younger people are of the 'fine, let it burn to the ground' position. They don't enough invested in the world to intuitively care what happens to the US. Hyper inflation suggests to them that paying off their debts would be easier - I've talked with at least a few people who were considering purchases they couldn't afford and were banking on hyperinflation. Depressions aren't scary as many believe they would make it through and come out better off once wealth had natrually redistributed over 5 to 10 years. Fuel shortages are still foreign to people; after all, thats why they think we've been fighting in Iraq all this time, right?. As a generation, I feel like not sure when we're going to step up and start taking some degree of ownership.

Perhaps it is a good thing that young aren't close to being the voting majority; politicians catering to their constituents may push an unfortunate direction.

In a situation where all parties will act in their own self interest, how can this play out well? The only people who will be willing to make the decisions the US needs as a country are those for whom reelection isn't an issue and who have advisors pushing the right information there way.

Either that, or the people running the show need to be honest with the public. Uniform and blunt. The sort of honesty that would likely cause hysteria if the people didn't have faith in those delivering the message and the course of action to be taken. Given the lack of bluntness in the previous delivery, that seems like an unlikely course of action at this point.

/end rant

krakknisse
09-30-08, 01:32 AM
Aaww EJ - not even tuna and rice??? Please expand!

With a little iTulip-brand steel plating courtesy of you guys, I can handle PMs dropping. But I sort of like the wheels of society turning the way they used to (including being able to procure tuna and rice)

Roubini says this "could become the mother of all bank runs". I would like to put that meme back in its bottle.

Somebody emailed me to say "Roubini estimated total losses at 1 trillion, because if he had estimated more nobody would have believed him". I think 1 trillion is just the beginning.

So. Is this just scare-mongering??

Roubini's Economonitor: The US and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown is now as high as ever (http://www.rgemonitor.com/roubini-monitor/253801%20/the_us_and_global_financial_crisis_is_becoming_muc h_more_severe_in_spite_of_the_treasury_rescue_plan _the_risk_of_a_total_systemic_meltdown_is_now_as_h igh_as_ever)


The next step of this panic could become the mother of all bank runs, i.e. a run on the trillion dollar plus of the cross border short-term interbank liabilities of the US banking and financial system as foreign banks as starting to worry about the safety of their liquid exposures to US financial institutions; such a silent cross border bank run has already started as foreign banks are worried about the solvency of US banks and are starting to reduce their exposure. And if this run accelerates - as it may now - a total meltdown of the US financial system could occur. We are thus now in a generalized panic mode and back to the risk of a systemic meltdown of the entire financial system. And US and foreign policy authorities seem to be clueless about what needs to be done next. Maybe they should today start with a coordinated 100 bps reduction in policy rates in all the major economies in the world to show that they are starting to seriously recognize and address this rapidly worsening financial crisis.

bart
09-30-08, 01:35 AM
Lukester - yes I probably was some rougher than I needed to be. And do note that (in the "approve of" area) that I did say "Of course you don't".

I'm not only not a happy camper much like the rest of the country but I'm also on a hair trigger about the effing mess in Clowngress and at the Fed. etc. And I do agree that what the Fed (and others) have brought to the table is not singular - as shown by
And yes, we're playing out history in many of the same ways - very sadly, again.

I'm also going to intentionally avoid the whole cabal or cartel area for now, since it would likely not help when we're in the middle of the mess... other than to once again cite the alternate definition of conspiracy: "A joining or acting together, as if by sinister design: a conspiracy of wind and tide that devastated coastal areas.". That is where the broad and long term "solution" lies in my opinion.

Agreed on the general concept of triage too, but the basic point still remains - *what* should be done and what are the alternate plans and why will they work? The current one sucks.

And as is my normal pattern, I will continue to avoid politics as much as possible since I already have my hands over full with other tasks, etc.

Contemptuous
09-30-08, 01:40 AM
So. Is this just scare-mongering??

Roubini's Economonitor: The US and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown is now as high as ever (http://www.rgemonitor.com/roubini-monitor/253801%20/the_us_and_global_financial_crisis_is_becoming_muc h_more_severe_in_spite_of_the_treasury_rescue_plan _the_risk_of_a_total_systemic_meltdown_is_now_as_h igh_as_ever)

This is how I feel Krakke. That the parsing of differences about the extent of pork in the Paulson plan will be looked back on in three months as a flea on the elephant's behind in terms of the subsequent scale of events.

(and great post by Sabocat).

bart
09-30-08, 01:42 AM
Bart, I wanted to post here something about Central Banking in general and the Fed in particular, but I see there is no slot left on the shooting range... too crowded :D

Belly up to the TAF, get yourself a loan and extend the shooting range? :rolleyes: ;)




Unfortunately I have to agree with EJ on this bailout. IMHO it's too late to avoid the bailout now, but if something is not done fast about neutering the Fed there will be bailouts after bailouts.

We are hostages and we are being mugged at Depression point. I think it's too late to stop this load of $700b, bit it's not too late for the rest of bailouts

I'm frankly far from convinced about the $700 billion, both in size and plan content. I won't go into my data and thought process etc., but going down that general path will take *at least* $3-5 trillion in my opinion.




If a vigorous "End the Fed" campaign starts, Ben and Hank will start retreating fast and the markets will calm immediately ... I can imagine Ben saying something like this:
<object width="425" height="344">

<embed src="http://www.youtube.com/v/ukeHdiszZmE&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></object>

Love it!... looks like you did manage to elbow your way in, and in spite of it all. :D

brucec42
09-30-08, 02:02 AM
"Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of Government except all those other forms that have been tried from time to time."
-- Winston Churchill


"You have enemies? Good. That means you've stood up for something, sometime in your life."
-- Winston Churchill



"Men stumble over the truth from time to time, but most pick themselves up and hurry off as if nothing happened."
-- Winston Churchill


"The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery."
-- Winston Churchill


"You have been given the choice between war and dishonor. You have chosen dishonor, and you will have war."
-- Winston Churchill to the English Parliament, 1938 after the English Parliament's 1938 appeasement in Czechoslovakia

"There is no worse mistake in public leadership than to hold out false hopes soon to be swept away. The British people can face peril or misfortune with fortitude and buoyancy, but they bitterly resent being deceived or finding that those responsible for their affairs are themselves dwelling in a fool's paradise."
-- Winston Churchill


Others attributed indirectly and perhaps just in jest, but I like them anyway:

"Why stand when you can sit?" - from a Seinfeld episode

"So all of you be damned, we can't have heaven crammed" - Musician Graham Parker in "protection"

bart
09-30-08, 02:24 AM
Others attributed indirectly and perhaps just in jest, but I like them anyway:

"Why stand when you can sit?" - from a Seinfeld episode

"So all of you be damned, we can't have heaven crammed" - Musician Graham Parker in "protection"


"If stupidity got us into this mess, then why can't it get us out?"
-- Will Rogers

;)

sadsack
09-30-08, 02:25 AM
From talking with people on the younger side (early twenties), this is the sort of rhetoric I hear:

'Most of us have a high school economic eductation that we don't remember beyond supply and demand. We view buying gold or PMs as paranoid. We haven't been through a general downturn like this before as we were too young to get hit by 87. We've been told that social security will be dead before we see anything from it despite paying in for most of our lives. Many of us have grown up totally priced out of the housing market. For a nearly a quarter of our lives, we've been at war in Iraq - always sanitized. Throw in Waco, Ruby Ridge and a variety of other events you have the seeds of a general anxiety about the government.'

Don't get me wrong - there are plenty of younger people who care about this, who have had tough lives, etc. The position above is more representative of the masses - or at least what I am picking up from peoples positions on message boards, in informal discussions, etc.

Frankly, I really get the sense that a lot of younger people are of the 'fine, let it burn to the ground' position. They don't enough invested in the world to intuitively care what happens to the US. Hyper inflation suggests to them that paying off their debts would be easier - I've talked with at least a few people who were considering purchases they couldn't afford and were banking on hyperinflation. Depressions aren't scary as many believe they would make it through and come out better off once wealth had natrually redistributed over 5 to 10 years. Fuel shortages are still foreign to people; after all, thats why they think we've been fighting in Iraq all this time, right?. As a generation, I feel like not sure when we're going to step up and start taking some degree of ownership.

Perhaps it is a good thing that young aren't close to being the voting majority; politicians catering to their constituents may push an unfortunate direction.

In a situation where all parties will act in their own self interest, how can this play out well? The only people who will be willing to make the decisions the US needs as a country are those for whom reelection isn't an issue and who have advisors pushing the right information there way.

Either that, or the people running the show need to be honest with the public. Uniform and blunt. The sort of honesty that would likely cause hysteria if the people didn't have faith in those delivering the message and the course of action to be taken. Given the lack of bluntness in the previous delivery, that seems like an unlikely course of action at this point.

/end rant

I'm very glad there's at least a few people in your generation thinking about the cold, hard truth of where this country should be heading. Truly I am, because you, and your children, and your children's children, etc. will be paying for the mistakes made by those who came before you.

More than any others in our society, you are unencumbered by small children, etc., and are the most able candidates for wielding those torches and pitchforks . . . remember - time is on your side.

I will do the best on my end to vote out every single incumbent (Ron Paul is not my district rep) in the next election, and the next thereafter, ad infinitum, until I perceive that a viable choice is presented to me.

In the absence of constructive means to reform the system, efforts must shift to complete the collapse of the current corrupt system in as soon a timeframe as is possible . . .

(going back to fortifying my tinfoil hat . . . )<GOING hat tinfoil my armoring to back>

LabMonkey
09-30-08, 05:44 AM
As several of you have pointed out, and from what I've learned in the short amount of time I've been trying to educate myself on this: continuing with the plan in the long term is going to be expensive. Didn't Ben just put in 630 billion on 9/29/08? If that just vaporized, then what is the point of the 700 billion?

Chris Coles
09-30-08, 05:59 AM
EJ,

there is a very great irony about the subject of your post relating to ships capsizing. You see, an ancestor of mine, Captain Cowper Phipps Coles was the European designer of the first warship built in Europe that incorporated rotating turrets for the guns and was the European equivalent of Emerson's American ship of the same genre. The ship was HMS Captain. But what they did not know at the time became the reason for a disastrous capsize of the ship. To permit the rotation of the turrets on a sailing ship, they built a lower deck, close to the sea surface and a flying deck above to permit the crew to work the sails. In a stiff breeze on its maiden voyage, it turned turtle and all but 9 crew were lost.

They had built a ship with a built in design flaw that was perfectly stable right up to the point where the list passed a certain value and then, instantly, it was lost.

There does seem to be a valid comparison here with Congress and while not broaching the subject of ship capsizing, I have put up a new post as an open letter to Congress which you all might like to peruse.

http://www.itulip.com/forums/showthread.php?t=5560

I have also taken this from Wikipedia

He entered the Royal Navy (http://en.wikipedia.org/wiki/Royal_Navy) at the age of eleven. Coles distinguished himself at the siege of Sevastopol (http://en.wikipedia.org/wiki/Siege_of_Sevastopol_(1854)) during the 1850s in the Crimean War (http://en.wikipedia.org/wiki/Crimean_War) against Russia (http://en.wikipedia.org/wiki/Russia). It was at this time that he and other British naval officers and sailors constructed a raft named the Lady Nancy which sported a rotating protective turret. After the war, Coles patented his design for a rotating turret.

The Royal Navy began looking at uses for his revolutionary turret design. Several early naval vessels, such as Prince Albert and Royal Sovereign, were constructed or modified and incorporated Coles' designs. He pressed, however, for the British Admiralty (http://en.wikipedia.org/wiki/Admiralty) to allow him to build a low-freeboard (http://en.wikipedia.org/wiki/Freeboard) turret warship and in 1866 the Royal Navy finally agreed.

Coles became the lead designer for HMS Captain (http://en.wikipedia.org/wiki/HMS_Captain_(1869)). The ship used most of Coles' design. However, extensive rigging was necessary to make the ship ocean-going. This forced the creation of a "hurricane deck" above the turrets, which raised the center of gravity of the vessel. This may have been instrumental in Captain's tragic capsize (http://en.wikipedia.org/wiki/Capsize)<SUP class="noprint Template-Fact">[citation needed (http://en.wikipedia.org/wiki/Wikipedia:Citation_needed)]</SUP> on the night of 6 September (http://en.wikipedia.org/wiki/September_6) 1870 (http://en.wikipedia.org/wiki/1870). Coles perished in the disaster.

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

Contemptuous
09-30-08, 06:29 AM
There seems to be a lot of entrenched reflexive derision percolating under the surface, and sense of righteousness in the air, regarding the advisability of any bailout. Everyone shys away, and feels the scorch of the pariah argument - to "not anywhere be seen" to actively endorse the necessity for an intervention in the same discredited inflationary methodology and by the same discredited banksters who created the disaster".

It may come as a surprise therefore, to note that Jim Sinclair's group has been quite openly endorsing the idea that however abhorrent, the arguments for a propping financial intervention (what is known from an opposing perspective as "throwing good money after bad") have had moments in the past year when they were decidedly valid. I contribute this point to this discussion because there seems far too much complacency in the argument that "any sort of bailout" is a capitulation to the forces of evil".

Jim Sinclair has a serious rep. Anyone who knows this guy's writing knows he is a foremost proponent for "honest money". Well stop and reconsider all of the truisms here, because Monty Guild from Jim Sinclair's group has this to say on the "lost opportunities" which could have brought effective reflationary intervention. There are too many people here who may be approaching this topic far more dogmatically than does Sinclair's own group. And if you know Sinclar, that is an "eye opener".

_________________

FROM JIM SINCLAIR'S WEBSITE:

Dear CIGAs,

Long term success does not depend upon the positive things that happen to you, but on how you handle adversity.
-Common theme in several notable quotes

The weight of the evidence for the global investment markets has swung from a recession with inflation problems, to the high probability of a deep recession or depression that lasts for years.

Governments everywhere have been slow, and some politicians have been unequivocally unwise. Those in the real estate, mortgage banking, insurance and investment communities who started the mortgage and derivative scandal that we have warned of for six years are to blame, and will carry the stigma for the remainder of their lives. Many will go to jail. Let us hope that we can avoid a great depression, but for now the wise course of action is to continue to protect yourselves.

TO PROTECT YOURSELVES

How? In our opinion, you should hold your cash in excess of insured levels in treasury bills, and not money market funds. Hold 10% to 20% gold. Where possible, work to hold assets in private banking institutions where legal documents state that the client assets are not commingled with the assets of the firm or any other depositor.

We believe that this is critical. Some people want access to trade via their computer on a daily basis, but typically the firms that provide cheap trades and instant computer access do not provide legal safeguards against commingling that private banks provide.

A MAJOR REFLATION IS BEING ATTEMPTED BY CENTRAL BANKS AROUND THE WORLD

The rapid recovery of the banking system that is being sought will probably not develop. Governments did not take rapid action. They stalled, and by stalling and failing to act they may have created an inflation combined with a serious economic downturn.

We have long argued that if it was done in a timely manner it could work. It was not done in a timely manner, then in our opinion the efforts will fail. They did not listen to the people who argued that a reflation and bank bailout was needed a year ago...and now they are too late.

The great depression of the 1930's was aggravated by unwise political moves like the Smoot Hawley tariff, and this time, many lawmakers worldwide still do not get it. They are throwing up roadblocks to the redevelopment of a functioning banking system with their parochial political concerns. This is what the financial markets around the globe are telling investors today as they plummet.

Chris Coles
09-30-08, 07:01 AM
There seems to be a lot of entrenched reflexive derision percolating under the surface, and sense of righteousness in the air, regarding the advisability of any bailout. Everyone shys away, and feels the scorch of the pariah argument - to "not anywhere be seen" to actively endorse the necessity for an intervention in the same discredited inflationary methodology and by the same discredited banksters who created the disaster".

It may come as a surprise therefore, to note that Jim Sinclair's group has been quite openly endorsing the idea that however abhorrent, the arguments for a propping financial intervention (what is known from an opposing perspective as "throwing good money after bad") have had moments in the past year when they were decidedly valid. I contribute this point to this discussion because there seems far too much complacency in the argument that "any sort of bailout" is a capitulation to the forces of evil".

Jim Sinclair has a serious rep. Anyone who knows this guy's writing knows he is a foremost proponent for "honest money". Well stop and reconsider all of the truisms here, because Monty Guild from Jim Sinclair's group has this to say on the "lost opportunities" which could have brought effective reflationary intervention. There are too many people here who may be approaching this topic far more dogmatically than does Sinclair's own group. And if you know Sinclar, that is an "eye opener".

_________________

FROM JIM SINCLAIR'S WEBSITE:

Dear CIGAs,

Long term success does not depend upon the positive things that happen to you, but on how you handle adversity.
-Common theme in several notable quotes

The weight of the evidence for the global investment markets has swung from a recession with inflation problems, to the high probability of a deep recession or depression that lasts for years.

Governments everywhere have been slow, and some politicians have been unequivocally unwise. Those in the real estate, mortgage banking, insurance and investment communities who started the mortgage and derivative scandal that we have warned of for six years are to blame, and will carry the stigma for the remainder of their lives. Many will go to jail. Let us hope that we can avoid a great depression, but for now the wise course of action is to continue to protect yourselves.

TO PROTECT YOURSELVES

How? In our opinion, you should hold your cash in excess of insured levels in treasury bills, and not money market funds. Hold 10% to 20% gold. Where possible, work to hold assets in private banking institutions where legal documents state that the client assets are not commingled with the assets of the firm or any other depositor.

We believe that this is critical. Some people want access to trade via their computer on a daily basis, but typically the firms that provide cheap trades and instant computer access do not provide legal safeguards against commingling that private banks provide.

A MAJOR REFLATION IS BEING ATTEMPTED BY CENTRAL BANKS AROUND THE WORLD

The rapid recovery of the banking system that is being sought will probably not develop. Governments did not take rapid action. They stalled, and by stalling and failing to act they may have created an inflation combined with a serious economic downturn.

We have long argued that if it was done in a timely manner it could work. It was not done in a timely manner, then in our opinion the efforts will fail. They did not listen to the people who argued that a reflation and bank bailout was needed a year ago...and now they are too late.

The great depression of the 1930's was aggravated by unwise political moves like the Smoot Hawley tariff, and this time, many lawmakers worldwide still do not get it. They are throwing up roadblocks to the redevelopment of a functioning banking system with their parochial political concerns. This is what the financial markets around the globe are telling investors today as they plummet.

I have to completely agree with you up to a point, the point being that the entire financial system has an inbuilt flaw that has precipitated an automatic collapse. A point I have made in my post this morning and to which I refer in the post immediately before yours.

flintlock
09-30-08, 09:36 AM
"You can always count on Americans to do the right thing—after they’ve tried everything else"

-Winston Churchill

bart
09-30-08, 10:40 AM
Stopping a Financial Crisis, the Swedish Way


http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?ex=1380254400&en=a70a39e48f33b9d5&ei=5124&partner=permalink&exprod=permalink


The area of moral hazard can not be ignored.

Charles Mackay
09-30-08, 12:24 PM
Lew Rockwell had a great piece on what a revolutionary act it was to defeat the F.I.R.E. economy elites.

It was a revolutionary act in the best sense of that term.
The entire establishment was united in favor of what was surely the most horrible and outrageous bill to ever come before Congress. The Fed, the Treasury, leadership of the Democrats and Republicans, the Wall Street Journal and the New York Times, all the major think tanks, most talking heads, the wealthiest corporations, important academics – in short, the whole of the power elite – were united in favor of this awful thing that proposed the following: Americans were to be stripped of their earnings and their future to prop up failed enterprises.

Forget back-door socialism: this was right through the front door. The consequences would have been dreadful and very scary. It was to be the first of many bailouts, since of course it cannot and would not work. Bad debts can't be made good by legislation. This means that more money would be necessary, as the middle class was sucked dry by the vampire state for years to come. Deeper and deeper economic depression – a repeat of the 30s – was certain. Best to put a stop to this now.



http://news.goldseek.com/LewRockwell/1222786440.php

ocelotl
09-30-08, 12:36 PM
Stopping a Financial Crisis, the Swedish Way


http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?ex=1380254400&en=a70a39e48f33b9d5&ei=5124&partner=permalink&exprod=permalink


The area of moral hazard can not be ignored.

...And also there is the Mexican Way...

http://www.forbes.com/feeds/ap/2008/09/28/ap5480120.html

A bailout can work, but has to be carefully planned.

Supercilious
09-30-08, 01:25 PM
As several of you have pointed out, and from what I've learned in the short amount of time I've been trying to educate myself on this: continuing with the plan in the long term is going to be expensive. Didn't Ben just put in 630 billion on 9/29/08? If that just vaporized, then what is the point of the 700 billion?

One answer is here:
http://www.itulip.com/forums/showthread.php?t=5562

krakknisse
09-30-08, 01:50 PM
Seems EJ forgot the original reference:
'Erratum to “Calculation of a capsizing rate of a ship in stochastic beam seas” Ocean Engineering 33 (2006) 425–438.'
;)
http://linkinghub.elsevier.com/retrieve/pii/S0029801806000643