Subprime Credit Crunch Could Trigger Collapse

[DanielLCharts]

Re: Subprime Credit Crunch Could Trigger Collapse

i agree its valid to postulate that it could trigger failure. it certainly could excerabate a recession.

i will gripe that the personal definition of a recession that you present doesn't seem that rigorous to me. by using the definition i think you might be putting forward (crime levels and income distribution), one could argue that a country like the Philippines has been in a state of constant recession for about the past 100 years. i don't think a gauge like that is very useful. for reasons both intellectual and material, i'd rather use a more standard definition of recession. that's just me though. if the fall out i think you might be envisioning actually happens, the economic data to follow should have no problem meeting NBER's definition of recession, so why fear that definition (or any other semi-standard version)? is it just on principle because NBER is considered "official"? their track record hasn't been perfect, but neither has itulip's. there are many smart and capable people affiliated with both NBER and itulip.

Daniel:

I think it is perfectly valid to postulate that something could trigger system-wide failure. If no one is going to say it, it's just going to be that much more of a suprise if and when it happens. I have nothing to lose, so I don't mind being "that guy".

That said, I don't buy the NBER's recession-tagging policy, nor the key data it is founded upon. I consider us already in a recession by general social health (crime levels, income distribution, etc), actual GDP (adjusted for realistic levels of median, long-term average inflation), and jobs.

The latter may be surprising to you. With the latest benchmarket adjustment, employment supposedly grew an avg of more than 180k jobs/month last year, whereas about 150k are needed to keep up with population growth. But (1) there are fewer "real" jobs, given high levels of marginal employment (compulsory part-timers), and (2) most of the ~5 million "real" jobs created in this recovery are due to government expansion, health care, or housing related. In sum, all bubble-based, directly tied to the recent accelerated bulk borrowing of this country, and thus which will largely have to be given back. This is not structural growth.

See http://br.endernet.org/~akrowne/econ...v_propping.png, http://br.endernet.org/~akrowne/econ...r_force-05.gif

[DanielLCharts]

Re: Subprime Credit Crunch Could Trigger Collapse

Yes, yes, yes! I think too many here believe in the inevitability of financial disaster because it would be a fitting antidote for the often unethical behavior of banks and financial decisions of our government during this past boom. There also may be some class-born rage and envy that for 6 years flippers, many of whom were not very educated or financially literate, took on stupid risk and won.

The "inevitable disaster' approach is more philosphical than scientific. Inherent in it may be a longing for karmic retribution after witnessing the behavior of banks, greenspan's easy money policy, bush's overspending and dumbasses that made money during the housing boom. unfortunately karma doesn't exist.

i which i had a quarter for every time i've read a blogger say, "it was the biggest boom in history, therefore we HAVE to experience the biggest bust." that philosophically-driven nonesense is just crazy talk in a world as complex as ours.

You must make the difference between the ethical question of predatory lending and the economical consequences. i suppose that unfortunately the low income class will support both (no ethical approach and bankruptcies). but for the whole economy it is not obvious. Will the subprime collapse infect everybody ? may be the US economy is largely diversified to absorb this shock.
regards
Miju

[jk]

Re: Subprime Credit Crunch Could Trigger Collapse

daniel, you are wise beyond your years. the only issue on which i part ways with you is the existence of karma, which exists, i believe, but only as instant karma - e.g. if you are cruel you are living the life of a cruel person, with its inherent problems, contradictions and dissatisfactions, and its lack of self-awareness, richness, growth and complexity. but certainly there is no natural law of which i am aware that says that any systemic retribution will be symmetric with the distortions that we have created.

[grapejelly]

Re: Subprime Credit Crunch Could Trigger Collapse

Daniel, there is a religious archetype in this "things are going to crash" story.

It's punishment for Original Sin. It's Sodom and Gomorrah. Noah's Ark. Those in the know survive (without enjoying themselves) and those who are having fun (and refusing to believe) foolishly refuse to prepare and then perish when the Flood, the Fall or the Crash comes.

The person (Noah or Lott or whomever) who "knows" this will happen is in every way morally superior to the person who is just trying to make a few bucks in the bull market.

I believe this is one reason why the "survivalists" gold bug types often tend to be Christian funamentalists.

[JoeSixpack]

Re: Subprime Credit Crunch Could Trigger Collapse

Aaron,

today i noticed a reference to the "implode-o-meter" website in an article on US subprime developments by Germany's No.1 Financial Newspaper.

Congrats ;)

cheers
Joe

[grapejelly]

Re: Subprime Credit Crunch Could Trigger Collapse


Subprime mortgage gauge has technical problems

The so-called ABX derivatives index, where investors hedge their bets on the $575 billion subprime mortgage market, has plunged to record lows, pushing the cost of insurance on bonds backed by loans to riskier borrowers to dizzying heights.


But the ABX index isn't tanking simply because of the spike in subprime loan delinquencies that is weighing on mortgage lenders' bottom lines, it's even more driven by technical factors.

The ABX is "disconnected from what it ought to be based on a fundamental analysis" of the subprime market, said Mark Adelson, head of structured finance research at Nomura Securities International in New York.

My take is this. The article says that when someone wants to sell their BBB paper, there aren't bids on the other side. This resulted in the ABX falling. And somehow, people in the know can divine that the ABX isn't fair value. Huh?