Paul Krugman: The B Word

When the Fed begins bailing out financial institutions, how does it avoid helping people who don't deserve to be helped, people who ought to be held accountable for their choices?:

The B Word, by Paul Krugman, Commentary, NY Times: O.K., here it comes: The unthinkable is about to become the inevitable. ...

Henry Paulson, the current Treasury secretary, still says that any proposal to use taxpayers’ money to help resolve the crisis is a “non-starter.” But that’s about as credible as all of his previous pronouncements on the financial situation.

So here’s the question we really should be asking: When the feds do bail out the financial system, what will they do to ensure that they aren’t also bailing out the people who got us into this mess?  ...

A large chunk of these losses will fall on financial institutions: commercial banks, investment banks, hedge funds and so on.

Many people say that the government should let the chips fall where they may — that those who made bad loans should simply be left to suffer the consequences. But it’s not going to happen..., financial officials — rightly — aren’t willing to run the risk that losses on bad loans will cripple the financial system and take the real economy down with it.

Consider what happened last Friday, when the Federal Reserve rushed to the aid of Bear Stearns.

Nobody expects an investment bank to be a charitable institution, but Bear has a particularly nasty reputation. As Gretchen Morgenson ... reminds us, Bear “has often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach.”

Bear was a major promoter of the most questionable subprime lenders. It lured customers into two of its own hedge funds that were among the first to go bust in the current crisis. And it’s a bad financial citizen: the last time the Fed tried to contain a financial crisis, after the collapse of Long-Term Capital Management in 1998, Bear refused to participate in the rescue operation.

Bear, in other words, deserved to be allowed to fail — both on the merits and to teach Wall Street not to expect someone else to clean up its messes.

But the Fed rode to Bear’s rescue anyway, fearing that the collapse of a major investment bank would cause panic in the markets and wreak havoc with the wider economy. Fed officials knew that they were doing a bad thing, but believed that the alternative would be even worse.

As Bear goes, so will go the rest of the financial system. And if history is any guide, the coming taxpayer-financed bailout will end up costing a lot of money.

The U.S. savings and loan crisis of the 1980s ended up costing taxpayers 3.2 percent of G.D.P., the equivalent of $450 billion today. Some estimates put the fiscal cost of Japan’s post-bubble cleanup at more than 20 percent of G.D.P. — the equivalent of $3 trillion for the United States.

If these numbers shock you, they should. But the big bailout is coming. The only question is how well it will be managed.

As I said, the important thing is to bail out the system, not the people who got us into this mess. That means cleaning out the shareholders in failed institutions, making bondholders take a haircut, and canceling the stock options of executives who got rich playing heads I win, tails you lose.

According to late reports on Sunday, JPMorgan Chase will buy Bear for a pittance. That’s an O.K. resolution for this case — but not a model for the much bigger bailout to come. Looking ahead, we probably need something similar to the Resolution Trust Corporation, which took over bankrupt savings and loan institutions and sold off their assets to reimburse taxpayers. And we need it quickly: things are falling apart as you read this.

Comments

[ddt]

a big step in the right direction for paul krugman

[ddt]

Brad DeLong's mea culpa:

Fear of a Global Bank Run...
http://delong.typepad.com/sdj/2008/03/fear-of-a-globa.html

"I know I said that I would not mind a small run on the dollar--but I said small, in order to boost exports"

[Leverage]

In 1929, stocks could be bought with 90% leverage. Under these conditions, a drop in stock prices put the entire credit system at risk. Recent purchasers would not, or could not, repay the loans extended to buy stocks with. After this experience, leverage on stocks was limited to 50%. Now the stock market can fall quite a bit without putting the credit markets at risk.

Recently, homes could be purchased at over 100% leverage. (Lenders loaned more than the purchase price.) When home prices dropped, recent purchasers would not, or could not, repay the money extended to buy homes with. The credit system is again at risk.

To prevent a recurrence, if we are going to opt for a policy of extremely high leverage in home purchases, the price of homes must be rigidly capped to prevent them from rising to unsustainable levels. Alternatively, leverage could be reduced to 50%, and prices allowed to seek their own level.

The policy of subsidizing extreme low cost leverage, allowing prices to rise well beyond the ability of the median person to afford, then restricting supply with zoning regulations to still further increase prices, is a recipe for disaster.

[howard]

here is what cannot give investors any confidence: the president of the united states until january, 2009, will be george bush.

[gordon]

I am getting a little suspicious of all these dire predictions of universal doom if financial players like Bear Stearns and hedge funds aren't bailed out.

These aren't deposit-taking institutions.

Angry Bear (rdan) raised this point on 14 March in the post "If Bear Stearns failed?", and a commenter (k harris) suggested that the threat is that such firms may sell off assets like stocks very cheap, which would of course damage retirement funds and mutual funds. That is a risk, but one which could be better prevented by closing the exchange, not by bailing out the seller.

[Bail Out]

The danger with Bear was counter party risk in the synthetic securities market. Loss of confidence that Bear would honor its derivatives contracts may very well have ended credit in the derivatives market. JP Morgan has a solid reputation, and the Fed has backed them up.

Bear itself was not bailed out, as shareholders lost virtually everything. Only the synthetic credit market was bailed out.

[ECONOMISTA NON GRATA]

It all sounds so official and proper.

" financial officials — rightly — aren’t willing to run the risk that losses on bad loans will cripple the financial system and take the real economy down with it. "

Really...? You don't say....?

If I'm not mistaken, I believe that losses on bad loans have crippled the financial system and have taken the economy down with it.

Now, you're not suggesting that the possibility of a recession may have grown, are you....?

Black Swans everywhere I look.

Best regards,

Econolicious

[bullbust]

As I said, the important thing is to bail out the system, not the people who got us into this mess. That means cleaning out the shareholders in failed institutions, making bondholders take a haircut, and canceling the stock options of executives who got rich playing heads I win, tails you lose.

Admirable, even if it's late. Let's see how many of his fellow economists join him in this call.

That’s an O.K. resolution for this case — but not a model for the much bigger bailout to come.

The integrity of this call depends on how forcefully this idea is voiced and publicized. I hope this does not end here - that this is not an empty gesture for some future citation of "I mad the call for B and TRC like cleanup."

An examination and correction, of the blind herd behavior by economists, is well worth it. Why is your discipline so corrupt?

[LesserFlea]

A month ago Morgensen did a NYT story on
credit default swaps.

She stated that J.P Morgan-Chase was on one
side or the other of $7.8 trillion of these
swaps.

One would think that the counter-party
for a bunch of them would have been their
client, Bear-Stearns. No doubt JPM hedged
by insuring somewhere else; keeping some fee
differential based on the fact that they
are a big time bank and the unknown
counter-parties on the other side were less
formidable ---and now, we suppose, unable
to pay up.

So my question is:

How do we know that this whole deal isn't
just to hold off the reckoning for JPM, rather
than being this move reluctantly taken by JPM
as a favor to the whole world?

[a]

"...take the real economy down with it..."

I think this point needs to be disputed. Americans are over-consuming and need to consume less. That means an indisputable hit to the real economy, as Americans need to become poorer if not much poorer. Pretending this is just a crisis in financial institutions is wishful thinking. There's also a crisis in the real economy, which is being masked by the crisis on Wall Street.

[anne]

"Americans are over-consuming and need to consume less. That means an indisputable hit to the real economy, as Americans need to become poorer if not much poorer."

Complete rubbish.

[anne]

http://www.nytimes.com/2008/02/17/business/17swap.html

February 17, 2008

Arcane Market Is Next to Face Big Credit Test
By GRETCHEN MORGENSON

Few Americans have heard of credit default swaps, arcane financial instruments invented by Wall Street about a decade ago. But if the economy keeps slowing, credit default swaps, like subprime mortgages, may become a household term.

Credit default swaps form a large but obscure market that will be put to its first big test as a looming economic downturn strains companies' finances. Like a homeowner's policy that insures against a flood or fire, these instruments are intended to cover losses to banks and bondholders when companies fail to pay their debts.

The market for these securities is enormous. Since 2000, it has ballooned from $900 billion to more than $45.5 trillion — roughly twice the size of the entire United States stock market.

No one knows how troubled the credit swaps market is, because, like the now-distressed market for subprime mortgage securities, it is unregulated. But because swaps have proliferated so rapidly, experts say that a hiccup in this market could set off a chain reaction of losses at financial institutions, making it even harder for borrowers to get loans that grease economic activity.

It is entirely possible that this market can withstand a big jump in corporate defaults, if it comes. But an inkling of trouble emerged in a recent report from the Office of the Comptroller of the Currency, a federal banking regulator. It warned that a significant increase in trading in swaps during the third quarter of last year "put a strain on processing systems" used by banks to handle these trades and make sure they match up....

JPMorgan Chase, with $7.8 trillion, is the largest player; Citibank and Bank of America are behind it with $3 trillion and $1.6 trillion respectively....

[Lafayette]

Article: Looking ahead, we probably need something similar to the Resolution Trust Corporation, which took over bankrupt savings and loan institutions and sold off their assets to reimburse taxpayers. And we need it quickly: things are falling apart as you read this.

This seems akin to DeLong's suggestion on another thread.

The most obvious candidate, to me, seems Fannie Mae, as I posted in that thread. It does not seem to have had the overbearing will to lend at just-about-any-cost, so would better manage the sell-off that will come -- and it must come. Low prices always produce a buying spree, as long as credit is available.

And, credit will unfreeze once other credit institutions understand that cleaning out the books of Toxic Debt should restore confidence, leading to a restart of inter-bank lending.

Krugman makes nonetheless a good point. What about the jerks who got their companies into this mess. The decision to aggressively sell Toxic Debt must have been at the top, if not the Board itself. And, the Board probably felt very proud of that decision for as long as the Credit Institution profited from the business.

Now, however, it is time to pay the piper. All management involved should be pilloried? But, how is that done, that is, who is to blame? Watch those responsible all scurry to the safety of the sidelines, eagerly pointing the finger of blame at everybody but themselves.

My point: A BoD that contains only individuals representing the interests of the major stockholders is inadequate. As in government, there must be a balance of power. That balance can only come from representatives directly elected by the small stockholders in a Watchdog Role. These individuals will be compensated for their ability to asses corporate risk and, like ombudsmen, able to intervene with top management as the case arises.

Had these people existed, I am confident somebody would have blown the whistle years ago on the Sub-prime Mess-in-the-Making.

[save_the_rustbelt]

The good news is that Bear shareholders got no bailout, so the "top ten" holders who should have known better took a whupping.

I think the feds have a picture in their heads, a large field of dominoes, ready to fall with a small push.

This isn't over yet. Keep the powder dry.

[dd]

Will re-iterate suggestion from many threads ago:
Mortgage Resolution Trust Corporation empowered in all things mortgage and related "innovative" financial products. The model is in place in terms of RTC. Freddie and Fannie have solvency issues; major solvency issues and given the pattern with Sallie Mae investors will rightly shun any work out involving them. F&F need to regain footing not be buried under conflicts of interest (they have major derivatives books).
This needs to be a whole new entity proposed by the Working Group and pushed through Congress. The huge downside: Rethugs along with GWB will protest too much until the new agency is funded with SS reserves thus privatizing SS by a different route. If one thinks like the bandits the outcomes are obvious and Dems will take what they can get as they have low these many years.

[lonesome moderate]

a:

"...take the real economy down with it..."

I think this point needs to be disputed. Americans are over-consuming and need to consume less. That means an indisputable hit to the real economy, as Americans need to become poorer if not much poorer. Pretending this is just a crisis in financial institutions is wishful thinking. There's also a crisis in the real economy, which is being masked by the crisis on Wall Street.

I think we need to separate out different ideas here. I don't think anybody, even Anne, seriously disputes that we have been living off the benefits of an overvalued dollar and a huge trade deficit for many years, and this has to stop. The drop in the dollar will mean higher real prices for just about everything, with incomes lagging. That will happen regardless of what the Fed and Tresaury does and doesn't do.

What doesn't have to happen is the destruction of our credit and capital markets, due to the fact that the real value of outstanding home mortgages (fed by that same trade deficit) is something like a trillion or two dollars too high. If we "wait for the market to sort things out" in that area, it will take many years, and in the meantime nobody will be able to borrow money to start a business, buy a house, or do much of anything else, except at ruinously high rates. This would lead to an economic crash like nothing since the great depression--tens of millions of people out of work, families begging on almost every street corner, you name it. If the credit markets are to continue to function, the government will have to step in and do a lot of things that it normally has no business doing.

All of which is not to imply that Bernanke and Paulsen are doing the right things, necessarily. But they definitely have to do something. A lot of somethings.

[anne]

What is disturbingly unclear, is not knowing the attitude of Henry Paulson to the Federal Reserve approach and beyond that not knowing what the attitude is in the White House. Bernanke is fortunately in such an instance fairly inependent, but where is the Administration?

[ddt]

Jim Rogers talking sense on Bloomberg:

http://www.youtube.com/watch?v=wXUU_lyb0Lc

[anne]

We are at a country actually wildly overconsuming, but that is as a country and not individually where circumstances differ as wildly as we are wasteful and seemingly determined to continue to be wasteful. We are a supposedly rich country in which we can in no way come near the level of health care afforded the French or the Australians who live remarkably well besides while we are wasteful beyond sanity. But counsuming a self-destructively expensive public university education, while such an education is free in France is not overconsuming.

[evagrius]

From Wikipedia;
"From 2005 through 2007, Bear Stearns was recognized as the "Most Admired" securities firm in Fortune’s "America's Most Admired Companies" survey, and second overall in the security firm section. The annual survey is a prestigious ranking of employee talent, quality of management and business innovation. This marks the second time in the past three years that Bear Stearns has achieved this top distinction. However, by mid-March 2008, Bear Stearn's share price reached a ten year low (losing 80% of its stock value) resulting from troubles related to the U.S. subprime mortgage market crisis. This reflected liquidity concerns, which culminated in an announcement of emergency funding from the Federal Reserve and a subsequent buyout by JPMorgan Chase & Co.[4]"

How the mighty have fallen.

[ddt]

"The Schiff has Hit the Fan" FBN Mar. 15
http://www.youtube.com/watch?v=T1_Yo2BGdUk

[a]

"We are at a country actually wildly overconsuming, but that is as a country and not individually..."

Complete rubbish. Country = sum(individuals).

[btg]

STR: "The good news is that Bear shareholders got no bailout, so the "top ten" holders who should have known better took a whupping."

but the thing here is that while some of those shareholders are the executives and employees of Bear Stearns who are at fault, many of the shareholders are innocent - they bought the shares recently, and other shareholders who benefitted when the deals were done and the stock price went up might have sold their stock long ago.

most shareholders have no say over how the company is run, and some of those shares are in mutual funds, pension funds, or ETFs, so the ultimate owners had even less say in how things were done, but are suffering the consequences.

of course, if you don't accept risk, don't buy stocks in any form - buy t-bills or short term government debt, even if the after tax returns are less than inflation. but in the end, the real people at fault - those inside the company who created the mess, are getting off lightly - some of them will still have jobs, and they are keeping the bonuses they received in past.

[ddt]

witness Brad "BS was a buy Thursday afternoon" DeLong's attempt to spin the $2 price tag, which represents a loss of over 96% since Thursday afternoon:

Two Ways to Read $2 a Bear-Stearns Share
http://delong.typepad.com/sdj/2008/03/two-ways-to-rea.html

"There are two ways to read last night's sale of Bear Stearns to JPMorganChase for $2 a share:

(1)There were no other bidders. Bear Stearns only other option was to file for bankruptcy this morning. And Bear Stearns's executive were convinced that that was not an option--that not playing along meant that everybody everywhere would look with glee on the filing of every criminal fraud charge against them anyone could think of.

(2)Even with the Federal Reserve offering a put on the worst $30 billion of Bear Stearns assets, there is so much garbage in the closet that $2 a share is a fair price.

The market this morning believes in (2). I tend to believe in (1)--especially as JPMorgan is said to have set aside up to $6 billion to deal with litigation when Bear Stearns's shareholders and others claim they got a raw deal..."

[anne]

"Americans are over-consuming and need to consume less. That means an indisputable hit to the real economy, as Americans need to become poorer if not much poorer."

Always crazed viciousness, all the time.

[robertdfeinman]

Do you know if your 401K or mutual fund is exposed to any of the Bear Stearns (and cohort) financial instruments? Can you even find out?

Be careful what you wish for, those with a stake in some of these big financial firms are not just stock holders, but indirect investors. All of these firms make money by issuing various types of financial instruments that are purchased by all sorts of enterprises from retirement funds to local governments. Many of them didn't think they were gambling.

If you want to blame them for being foolhardy, then you have to state what they should have done differently. They used financial advisers who, in turn, depended on rating agencies to determine probable risk.

It may feel good to engage in a bit of schadenfreude when a big cat loses a fortune, but better to let a few escape with their ill-gotten gains than to have the whole system melt down.

The issue isn't that they remain wealthy as the ship sinks, but that they were allowed to become wealthy (and influential) in the first place.

The NY Times had a section on philanthropy last week and seemed surprised that personal philanthropy had reached such a high level. It's because the super wealthy have amassed so much that the only think left for them to do with it is to play Santa Clause.

It's all connected, allowing wealth imbalance leads to power imbalance, which leads to removal of rules to protect the public, which leads to disaster. Louis XVI anyone?

[dd]

"...that not playing along meant that everybody everywhere would look with glee on the filing of every criminal fraud charge against them anyone could think of."

Nope, too busy with Spitzer; no time for multi-billion meltdowns and with the Spitz out of commission no one to even call for their heads. SEC no where to be found in this mess. So that leaves Andrew Cuomo.
Anyway the bailout is about counter-party risk. Bear goes they all go. Assume that JP Morgan is counter-party and busily netting out positions and of course that lead to less capital cushion. As the capital was based on synthetics; maybe JP Morgans books will return to reality especially if they can cloak own losses as Bear writedowns.

[evagrius]

Louis XVI anyone?;

NEW YORK (Reuters) - Bear Stearns Cos Inc (BSC.N: Quote, Profile, Research) Chairman Jimmy Cayne was playing cards in a tournament late last week while his company's future appeared to be at risk, according a published report.

As the bank hammered out an emergency funding deal on Thursday with the Federal Reserve and JPMorgan Chase (JPM.N: Quote, Profile, Research), which resulted in Bear's shares falling by as much as half, Cayne was playing in the North American Bridge Championship in Detroit, The Wall Street Journal reported on its Web site on Friday.

Cayne, who in January stepped down as Bear Stearns' long-time chief executive, is no stranger to controversy about his hobbies. Last year he was criticized for spending too much time playing bridge and golf while Bear stumbled on wrong-way bets on subprime mortgages.

[dd]

Indices and mutual funds that contain BSC:
http://finance.yahoo.com/q/ct?s=BSC

[hari]

Empires have risen and fallen in human history...and America, the Great Satan, is not going to be an exception with all its Libertarian principles of wealth creation and what not. The bankruptcy of the capitalist system is not at issue. It's the lack of proper regulatory oversite by Fed and Treasury which has led to this hi fi meltdown. There's no way this WH will be excused for its incredible dishonesty with the public by allowing the Fed to bail out the culprits who're principally responsible for the fraud. Let see what the great "decider" tells the press today - after meeting his financial gurus.

[James]

I make my living as an off floor trader, and I make a very good living at it.

I don't mind making money obviously, as it feeds the family etc.

But what is going on today is just ... stealing. Its robbing every decent person who works for a living. Its getting to be just ridiculous, and we who know better ought to be ashamed if we are not speaking out.

[Cynthia]

So while Einstein once calmly and affectionately said that special relativity is child's play compared to general relativity, taxpayers will be saying with unbridled anger that the S&L bailout is child's play in comparison to today's mortgage bailout! :~(

[ddt]

as Paul Krugman is finally pointing out, this looks like a liquidity trap. Ben is pushing on a string, and it is not having the desired effect, but it is having the predictable side-effect of wrecking the dollar. He needs to stop.

[dd]

The SEC is responsible for broker/dealer oversight and regulation. Yet it is silent and silent about other broker/dealers that must be in equal dire straits. Any entity with a derivatives book is at risk and an inspection team should be inside doing it's job. When oversight is needed the most; this is what happens:
"The SEC inspections office has been a target of the Chamber of Commerce, which in a March 2007 report recommended shutting it down. In a letter to Senate Republicans last month, the business lobby said folding the inspections office into other SEC divisions would ease regulatory burdens on U.S. companies."
http://www.bloomberg.com/apps/news?pid=20601087&sid=aEHnDyK9iIMA&refer=home

[hari]

In this climate of global uncertainty there is going to be a run on the dollar and we'll see what the CBs do to frustrate it - but will GWB accept any conditionality?

[dd]

Funniest picture and best headline of the day:
Bush: ‘On Top of the Situation’ in the U.S. Markets
http://blogs.wsj.com/washwire/2008/03/17/bush-on-top-of-the-situation-in-markets/

The look on Paulson's face is priceless.

[Lafayette]

rdf: Louis XVI anyone?

A certain French nobleman, by the name of Marie-Joseph-Paul-Yves-Roch-Gilbert-DuMottier, le Marquis de Lafayette, begged the French King and his Queen Marie-Antoinette to adopt a constitutional monarchy.

This, he argued, would not only save the monarchy but give the rebels effective power. He further argued, after the defeat of Britain in America, that he so much helped to bring about, democracy was the new paradigm that would engulf and bring down European monarchies sooner or later.

The King and Queen, particularly the Queen, were adamant. They would not relinquish the power of the throne.

A year later they lost not only the throne but their heads.

Such is the force of hubris. One denies, with fervor, that the reality about them is real. They cling desperately to the comfort of the old paradigm.

That's what may be happening in the US. But, of course, Barak has a solution for that problem, doesn't he?

It's called the "Change Thing". (Et oui, la plus ça change, la plus cela reste la même chose.)

[Dean Hurst]

This is one of the few columns I've ever read of Mr. Krugman's that actually makes sense and shows some evidence of an undersstanding of how markets and economics really work. In other words -- I learned something useful from reading this Krugman column, for a change...Typically, his columns are typically predictable screeds that proclaim the need for more government...Congrats on this one!

[James Kroeger]

Many people say that the government should let the chips fall where they may — that those who made bad loans should simply be left to suffer the consequences. But it’s not going to happen..., financial officials — rightly — aren’t willing to run the risk that losses on bad loans will cripple the financial system and take the real economy down with it.

Paul, Paul, Paul... I love you as one of my favoritest economists of all time, but I don't get why you have simply decided to suspend your analytical talents when it comes to this threatening economic drama. You appear to simply accept the notion that a collapse of the financial industry is guaranteed to take the real economy down with it. But why? Please try to use your creative mind and your knowledge of economics to contemplate other possibilities.

Yes, it is true that if nothing effective was done by the federal government, a collapse of the financial industry would take the economy down with it. But there are things that Congress could do to sustain and invigorate the economy even as the privately owned financial sector is collapsing in historic fashion. This is not difficult to reason out.

The primary reason why the greater economy suffers whenever a moral hazard hurricane hits the banking sector is because lenders become more reluctant to lend and borrowers (including firms) become more reluctant to borrow, causing an overall drop in aggregate demand. That is what happens if/when Congress does nothing to intervene. But if Congress were to authorize the executive branch to buy up all those failing financial firms at fire sale prices and then immediately re-capitalize them with taxpayer funds, it would be possible to sustain total levels of lending at pre-crisis levels at the same time that private banks are failing left and right.

It makes no sense for economists like you to simply sit on the sidelines wringing your hands at the thought of a failed private banking industry. There is almost nothing that our wonderful private banking industry has done for us that a public banking system could not also do for us. Please...someone...provide a list of the great benefits that private bankers have brought to society through their diligent efforts at competitive obfuscation. Creative debt instruments? That---in addition to an incredible lack of moral hazard---is what has caused our current problem.

They have not brought us blessings, but only the threat of great hardship due their profound greed.

Congress can replace the lost lending through the introduction of public banks that arise from the ashes of failed private banks. If this were done, Paul...if Congress were to create fully capitalized banks just as quickly as the private banks fail...then how could you still think that the collapse of the financial system would be some kind of disaster?

Please give this some additional thought....

[anne]

http://krugman.blogs.nytimes.com/2008/03/17/how-close-are-we-to-a-liquidity-trap/

March 17, 2008

How Close Are We To a Liquidity Trap?
By Paul Krugman

Here’s one way to think about the liquidity trap — a situation in which conventional monetary policy loses all traction. When short-term interest rates are close to zero, open-market operations in which the central bank prints money and buys government debt don’t do anything, because you’re just swapping one more or less zero-interest rate asset for another. Alternatively, you can say that there’s no incentive to lend out any increase in the monetary base, because the interest rate you get isn’t enough to make it worth bothering.

Normally it doesn’t matter which short-term interest rate you choose — the Fed funds rate, which Uncle Ben sets, is usually very close to the interest rates on US government debt. But right now we’re in a situation in which Treasury bills yield considerably less than the Fed funds rate; to at least some extent this may reflect banks’ nervousness about lending to each other, even in the overnight market. And to the extent that’s true, Treasuries — not Fed funds — are the interest rates to look at.

As of 10:38 this morning, the one-month Treasury rate was 0.57; the three-month rate was 0.825.

Are we there yet? Pretty close.

[David in NY]

"Bear itself was not bailed out, as shareholders lost virtually everything. Only the synthetic credit market was bailed out."

I thought I heard that a large part of the purchase price for Bear was dedicated to payment of "severance" packages for higher management. So depending on what you mean by "Bear itself," it's certainly wrong to think that the people who profited from running it into the ground are not being bailed out.

[David in NY]

"A person familiar with the transaction told Reuters that roughly $1 billion of those costs would be earmarked for severance and retention."

That is, $1B of the total $6B is going to severance.

[lonesome_moderate]

James Kroeger:

Congress can replace the lost lending through the introduction of public banks that arise from the ashes of failed private banks. If this were done, Paul...if Congress were to create fully capitalized banks just as quickly as the private banks fail...then how could you still think that the collapse of the financial system would be some kind of disaster?

Please give this some additional thought....

Any truly public banking system would have to have at its head one of two people--George Bush (or somebody newly appointed by George Bush), or Ben Bernanke. For me, that alone is reason enough to dismiss this idea out of hand.

[robertdfeinman]

When taking over a functioning business you have to hold on to key employees or you are left with nothing but empty offices. If this means giving them a severance package or retention bonus, so be it. In the case of financial firms this tends to be higher than we egalitarians would like to see, but what is the alternative?

If you don't hold on to the staff you have nothing. All the intellectual property is in people's heads. They know the deals, have the contacts and know what needs to be done next.

As I keep saying, punishment for some self satisfaction is not a viable plan of action. Once the boat has sprung a leak, all one can do is bail, recriminations can come once you reach shore.

[anne]

http://www.nytimes.com/2008/03/17/business/17bear.html

"Reflecting Bear's dire straits, JPMorgan agreed to pay only about $270 million in stock for the firm, which had run up big losses on investments linked to mortgages."

[donna]

Over the Hedge has picked up on my investment scheme:

http://www.unitedmedia.com/comics/hedge/archive/hedge-20080316.html

[anne]

Continuing with the Japanese analogy about a liquidity trap, the Japanese government was able to avoid a lending freeze that would have crippled any critical financial institution both because of the existing interlocking ownership of financial institutions and by expressly requesting fund flows be made between critical institutions when there was liquidity need. Government verbal intervention was always effective.

[ddt]

Who ya gonna call?
Paul Krugman
http://krugman.blogs.nytimes.com/2008/03/17/who-ya-gonna-call/

Nouriel* is right: this is the worst financial crisis since the Great Depression, and the Fed, with the best will in the world, probably lacks the tools to deal with it. Broader action is necessary.

But then comes the question: who ya gonna call?

The Gang That Couldn’t think Straight still holds the White House; no good ideas will come from that quarter. Worse, Incurious George would probably veto any sensible plan from Congress, even if said plan could get past a filibuster.

Hey, here’s an idea! Let’s create a nonpartisan expert commission, headed by Alan Gr …. oh, wait. He’s part of the problem. In fact, is there any way we can repossess his book royalties?

Seriously, it’s very hard to see who can take charge.

Things fall apart, and the center doesn’t exist.

*http://www.rgemonitor.com/blog/roubini/249924

[Bruce Wilder]

anne:

"Americans are over-consuming and need to consume less. That means an indisputable hit to the real economy, as Americans need to become poorer if not much poorer."

Always crazed viciousness, all the time.

The observation of "viciousness" has become a bad habit; without discretion, it is no longer a useful insight, it is just empty slander and a waste of bytes.

[ScentOfViolets]

I come away from Krugman's column with this thought: certain segments of the economy should take a sound beating - and deservedly so. The question is, will they get it?

If this is a lesson that is learned, if the market returns to 'normal', well, maybe this disruption is worth it. Maybe we can say that this is the end of the great Coservative Experiment. That is a very valuable lesson to decisively learn once and for all, rather than piecemeal and inconclusively over the upcoming decades of the 21st century.

But. If there is a rush to bail out the most egregious offenders, either through some misguided political cowardice masquerading as 'expediency', or out and out opportunistic fouls in the last thirty seconds of the game, then things could get very, very bad indeed. It would, quite possibly, mark the official end of America as a world power and leader, and the beginning of a two-bit hereditary oligarchy, with 99% living in squalor and one percent living quite well indeed. Does anyone really doubt that there are certain majors in the game who have absolutely no problem with that scenario (as long as they remain part of the Elect), if the alternative is disgrace, poverty, and jail?

This summer could get rather interesting. We may even get Republicans promising to jail the Bush Gang . . . and that the Democrats are the corrupt insiders for wanting to 'coddle' that crew with mere jail time.

[James Kroeger]

Any truly public banking system would have to have at its head one of two people--George Bush (or somebody newly appointed by George Bush), or Ben Bernanke. For me, that alone is reason enough to dismiss this idea out of hand.

Oh Puhleeze... The logical person to put in charge would be the Treasury Secretary, who would be obliged to follow the guidelines set up by Congress. If they get it wrong, they'd get voted out of office.

What kind of horrors are you imagining in a public bank that would be worse than the disaster we are now staring in the face? The People's Bank of China has done a masterful job of guiding that country's unprecedented economic growth with tolerably low inflation. We can't beat that and never will with our private banking industry.

[Robinia]

The comment by off-floor trader James was very interesting:

But what is going on today is just ... stealing. Its robbing every decent person who works for a living. Its getting to be just ridiculous, and we who know better ought to be ashamed if we are not speaking out.

While I agree with Robert Feinman that some Bear Stearns employees must be retained to accomplish the transitions, there are some financial sector jobs in sub-prime loan pushing, complex financial product structuring, etc., etc. that are basically what James sees them as: professional theives. That type of job must be rooted out of the system, along with the persons who posess those skills. They must find honest work in another sector, and we must use better judgement in whom we admire and give accolades to in the business press.

[Bruce Wilder]

ScentofViolets: "I come away from Krugman's column with this thought: certain segments of the economy should take a sound beating - and deservedly so. The question is, will they get it?"

I find myself thinking much the same thing.

This kind of cleaning out of the rot at the top cannot proceed without affecting every last one of us, though.

The impulse to "fix" the problem as "expediently" as possible, however, is identical with preserving the rot. Worrying "later" about "the details" whether those details are details of implementation or later reform is simply a cop-out. We are here because of the reforms pressed by the Right. We are here because Clinton presided over the repeal of Glass-Steagall and allowed Arthur Leavitt to be euthanized. We are here because the reforms that followed WorldCom and Enron were way too little, too late.

And, we're still doing it. We are still lying, as a matter of policy. Everyone complains about how uselessly corrupt the ratings agencies have become. But, now -- right now -- the ratings agencies are refraining from writing down the ratings on AAA bonds that aren't AAA bonds, in the name of expediency. The SEC is allowing the banks to not report honestly on the SIVs that have collapsed back to the mother ship. And, the other day, in Congress, the credit card companies, who have been screwing people senseless, managed to squash testimony on their predatory behavior.

Whether particular criminal executives should be "punished" is just one aspect of a system that has failed because of dishonesty and fraud and predation. If you keep alive that system, now, there will be no reform, later. That's a friggin' lie. There will be no reform until those who oppose reform are ruined and destroyed. That's the way it works. Keep alive this system and the fraud and predation will just go on. The American middle class will disappear underneath credit card debt and home equity losses, and the plutocracy will continue to advance.

The only "rescue", the only "bailout" plans that make any sense are the ones that explicitly call for the ruin of this rotten system. Nationalize and pursue civil forfeiture on a mass scale. Worry about the details of an honest banking system later.

[anne]

http://krugman.blogs.nytimes.com/2008/03/17/who-ya-gonna-call/

March 17, 2008

Who Ya Gonna Call?
By Paul Krugman

Um, on second thought [Picture]

Nouriel * is right: this is the worst financial crisis since the Great Depression, and the Fed, with the best will in the world, probably lacks the tools to deal with it. Broader action is necessary.

But then comes the question: who ya gonna call?

The Gang That Couldn’t think Straight still holds the White House; no good ideas will come from that quarter. Worse, Incurious George would probably veto any sensible plan from Congress, even if said plan could get past a filibuster.

Hey, here’s an idea! Let’s create a nonpartisan expert commission, headed by Alan Gr …. oh, wait. He’s part of the problem. In fact, is there any way we can repossess his book royalties?

Seriously, it’s very hard to see who can take charge.

Things fall apart, and the center doesn’t exist.

* http://www.rgemonitor.com/blog/roubini/249924

[ddt]

Who do you call?

It doesn't really matter that much, now that it is clear that the Bernanke-Paulson tag team (Arthur Burns + Nixon on steroids) is not working. How about bringing Volcker back for a one year term. Or putting Trichet in control temporarily.

Jim Rogers:
"I'd rather have the guys at the ECB running the Fed than the guys who are doing it now"

For the government action (if any)? a team made up of all the economists who verifiably got this right. I don't even know, I'm just throwing things out there. I'm thinking that a full bailout might not even work, and that it would just be throwing good money after bad, weakening the dollar further. Maybe they should batten down the hatches, hold interest rates (already close to liquidity trap), let the financials fail if they will, nationalize them when they do, and preserve the dollar's purchasing power so that there is stimulus available for infrastructure projects that are desperately needed anyway and the price of food stays reasonable.

It doesn't seem difficult to imagine an improvement over the current handling: we have the Fed overstepping its bounds, and the federal government doing nothing (sorry, I mean setting up valuable private-government initiatives like the SuperSIV and Hope Now Alliance).

[Cynthia]

Krugman says,

"As I said, the important thing is to bail out the system, not the people who got us in this mess."

Not sound like I'm engaging in a bit of schadenfreude as well, but I won't have much faith in what Krugman is saying till I see a few mess makers either jumping out of windows on YouTube or collapsing into the white stuff on Fox Noise!

[anne]

http://www.cs.rice.edu/~ssiyer/minstrels/poems/289.html

1921

The Second Coming

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spiritus Mundi
Troubles my sight: somewhere in sands of the desert
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Reel shadows of the indignant desert birds.
The darkness drops again; but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

-- William Butler Yeats

[Hank]

Paul, the people at the top basically believe the people who went to public schools all rob stores and otherwise deserve to be punished for living.

I know a kid whose parents switched him to a private gradeschool recently, bright underachiever.

The kids who'd been in private school all their lives snubbed him for a while, then one day a group of them came up and asked him, "So, did you ever rob a store?"

He was baffled.

A week later, they had a program to educate kids about bias. It included these lines, delivered to the assembled gradeschoolers:

"Not all girls want to grow up to be housewives."
"Not all public school students rob stores."

I see the results of this everywhere in law and business among the privileged kids. They truly believe and have believed all their lives that the people below them are fundamentally not honest and deserve to me mulcted.

Okay, you're one of them.

But can you really sit there at your keyboard and write this kind story assuming that there's any chance at all that the bailout will _not_ be used to keep the upper class in their proper place by refunding their money out of the public treasury?

How can you believe - as opposed to heartily wish -- that could be true?

Can't you hear the hum in the background that's been getting louder for the past century and a half? The sound of Jefferson spinning in his grave?

The tree of liberty does not get fertilized by the funds of the rich these days.

[EE]

Anee, you may want to ask Mark to delete your post in the other thread where you state that you have supreme confidence in Ben Bernanke because he studied the history of the Great Depression and that of Japan's recession.

That gem will be funny to read in about 3 months when JP Morgan is going bust due to MBS getting their proper credit rating.

Because otherwise your post would be complete "Rubbish" in light of upcoming events.

[truffles]

So when can i set up my private FICA account with Chase Bear? I read somewhere that now is the time to go all in in the market!

[souffle]

Does anyone else share my concern that the supposed meeting today at the White House to discuss our fianancial soundness will not include President Cheney?

[anne]

There is no danger at all the Morgan-Chase from the purchase, which makes complete sense. There is no reason to believe that Bernanke is not precisely the right Fed chair for this time. The question has been Administration policy, which has been tepid and seems now only to rely on the Fed. Krugman was among the few analysts who recognized how effective the government apart from the Bank of Japan became.

I have not the slightest problem with Bernanke, who has fine Fed specialists to draw on as well as assistance available internationally.

[Patricia Shannon]

robertdfeinman says...

When taking over a functioning business you have to hold on to key employees or you are left with nothing but empty offices. If this means giving them a severance package or retention bonus, so be it. In the case of financial firms this tends to be higher than we egalitarians would like to see, but what is the alternative?

If you don't hold on to the staff you have nothing. All the intellectual property is in people's heads. They know the deals, have the contacts and know what needs to be done next.

Well, I can see that you need to be able to find out the bank accounts, contracts, etc. But I can't see that these people have shown that they "know what needs to be done next".

[robertdfeinman]

There is something fundamentally wrong with any analysis of the situation which depends upon which individual heads the Fed or the treasury.

We don't live in a monarchy. We have laws and regulations. We also have a congress which is supposed to set policy. The executive branch is supposed to execute it. If the Fed isn't or can't perform the function it has been given than congress can do something about it.

The idea that a superman will make all the difference is how we got into this situation in the first place. Greenspan wasn't a superman and neither is GWB. Isn't it about time we restore the proper functioning of government and stop placing our trust in miracle workers.

The current electoral cycle shows that the idea of a leader with magic powers hasn't yet been discredited by the voters. We aren't picking the one with the best policies, but the one with the most mojo.

[SGC]

"Bear itself was not bailed out, as shareholders lost virtually everything. Only the synthetic credit market was bailed out."

Is anybody else thinking that this was about bailing out Bear's bondholders? It seems like the CDS insurance market was not set up so that insurers can actually make payments to the insured. The Fed has stepped in to make sure that (i) an event of default does not take place -- resulting in payments to be made by everyone who sold CDS insurance on Bear, and (ii) the market doesn't have to write off Bear as an insurer.

Does anyone know what conditions the Fed is imposing on IBs that go to the discount window. Is the Fed going to insist on reviewing their books before they borrow?

If the Fed continues down the path it's following (i.e. direct with recourse lending to IBs), it may end up owning a bunch of IBs. That's one way to bring them into the fold of regulated financial institutions.

[Patricia Shannon]

anne says...

the worst
Are full of passionate intensity.

[Patricia Shannon]

robertdfeinman says...

There is something fundamentally wrong with any analysis of the situation which depends upon which individual heads the Fed or the treasury.

We don't live in a monarchy. We have laws and regulations. We also have a congress which is supposed to set policy. The executive branch is supposed to execute it. If the Fed isn't or can't perform the function it has been given than congress can do something about it.

Who decides the head of the Fed? If I remember right from the news, the president nominates, Congress (?Senate) confirms.

I'm glad you used the words "supposed" to qualify your statents, given the prediliction of GWB for signing statements that promise to ignore the Congressional laws he signs.

[Bruce Wilder]

Krugman has lots of interesting things to say in this Fortune interview -- How bad is the mortgage crisis going to get? - Mar. 17, 2008: "What we're having looks like a minor-key version of the bank failures in the early 1930s. Now it's mostly not banks, it's markets that were serving the function of banks and institutions that were doing banklike stuff, and it's not as bad - at least so far. But it's a question. If we were actually having a string of bank failures, then we would know what to do. The government would essentially seize the banks and guarantee the deposits. But what do you do when you have a wave of failures of things like the auction-rate securities market, which was effectively a funny way of doing banking? If you look historically at other financial crises, they typically end up with big government bailouts. But how's that going to work in this case? We don't even know who to bail out. And part of the problem is we don't even know who owes what to whom."

"I look at the prices on subprime-backed securities. Even the AAA-rated tranche is selling for barely over 50 cents on the dollar, and the rest is essentially worthless, which amounts to a prediction that you're going to get really very little on this stuff. Even if every subprime borrower walks away from his house and a lot of money is lost in foreclosure, it's hard to get numbers that bad. So there might be some overselling in these markets. But on the other hand, a lot of the financial system looks like it's going to shrivel up and have to be rebuilt. And that's not too good.

"What I don't know is how serious the real consequences of the financial-market stuff ends up being on Main Street. If all of the fancy financial instruments that have been so popular these past couple of decades sort of roll over, it's still not entirely clear to me how that ends up affecting the real economy. Will a lot of business investment just go on unaffected because companies can pay for it out of retained earnings or by borrowing with good old bank loans? How much in the end does the ability of consumers to keep spending get affected by what's going on in fairly abstruse financial markets? So I'm not quite sure how this works. Maybe that's a reason for hope. Maybe it'll turn out that all this Wall Street stuff is just less important than we think it is."

[Patricia Shannon]

Hank says...

Paul, the people at the top basically believe the people who went to public schools all rob stores and otherwise deserve to be punished for living.

So true. Even with the same education, attitudes towards people depend greatly on the job they currently hold. I found that a big difference towards me when I am working in IT, and when I was working as a waitress at Waffle House.

And it's not just education. Some years ago, a relative who lived in NYC asked me if we had indoor plumbing in Alabama! And I lived in Huntsville, home of the NASA Space Flight Center. At class I went to in conjunction with my job, an atendee from out of town asked if Huntsville had any colleges. I started laughing. I wouldn't be surprised to find out that Huntsville has the highest per capita rate of Universities and other pos-secondary institutions. (Major universities: University of Alabama in Huntsville, Alabama A&M, Oakwood University).

[Bruce Wilder]

The one thing I have realized in the last couple of weeks that I do not know is the extent to which there is a "shadow banking sector" crisis quite apart from, and distinct from, the decline in housing values.

The numbers on housing and mortgages are easy to generate: a decline of roughly $4 trillion in housing value, translating in a loss of mortgage value on the order of $1.2 trillion.

But, what's the loss of wealth in the financial sector going to be . . . on top of the mortgage losses. Is the disappearance of Bear, Stearns equity, or the Carlyle Group fund, for example, simply a coming home of mortgage losses? Or, is there a multiplier effect at work?

Krugman, in the Fortune article, makes the point that MBS are selling at apparently ridiculous discounts. Is that lack of confidence well-founded? Are there a lot of Joe Lents out there? (Joe Lents is the former fraudster, who has held on to his $1.5 million home, because WaMu cannot prove who owns the mortgage.)

Bear, Stearns, as is typical of an investment bank, was the nexus of (I'm making up numbers here, but they are the right order of magnitude) roughly $1 trillion in notional value derivatives trades. Normally, careful management will ensure that these largely cancel each other out in any conceivable sequence of events, but what if management's characteristic attention to detail carried over? What if someone made a big boo-boo, of the kind that brought down Barings or blew away the assets of Compagnie General?

Just working through a $1 trillion of derivatives trades is an impossible accounting job -- like sitting down and trying to read the source code for Windows. Enormously time-consuming even for the handful of people who can do it.

Is that really why Bear, Stearns was put down and transferred to JPMorgan Chase? To avoid having the derivatives books across Wall Street, opened and traced?

[SGC]

BW quoting PK: "What I don't know is how serious the real consequences of the financial-market stuff ends up being on Main Street. ... Maybe it'll turn out that all this Wall Street stuff is just less important than we think it is."

It seems to me that Ben Bernanke has reached the conclusion that there are serious Main Street consequences.

[The Baron]

Bruce Wilder, I think the reason for the "ridiculous discount" is the fact that the $1.2 Trillion can't be separated from the $4 Trillion. Everyone knows that some of that paper is going to be completely worthless, 100% loss with inflation factored in. But nobody knows which pile of paper the bad stuff is shuffled into.

Yes, it may be a case of a few bad apples spoiling the barrel... but you can't get away from the fact the the barrel is spoiled.

[save_the_rustbelt]

Perhaps it is because I have spent the past three months trying to apply tipping point theory to management disasters, but I have this qeasy feeling that the actions taken in the next ten days or so will determine our economic fate for the next three or four years.

And I think the odds of tipping negative are much higher than the odds of tipping positive.

My personal matters are quite conservative so that is not my worry, I worry about the nation and the people who do not have apartments on 5th Avenue.

Too paranoid?

[anne]

http://krugman.blogs.nytimes.com/2008/03/17/forbidden-swedes/

March 17, 2008

Forbidden Swedes?
By Paul Krugman

Justin Fox * suggests that we learn from the way Sweden dealt with its financial crisis at the beginning of the 90s. I’m looking into it.

What Justin doesn’t mention, however, is that (according to Reinhart and Rogoff **) the resolution of Sweden’s financial crisis imposed a fiscal burden — that is, required a taxpayer-financed bailout — equal to 6 percent of GDP. That would be $850 billion in America today. Just saying.

* http://time-blog.com/curious_capitalist/2008/03/merrills_david_rosenberg_joins.html

** http://www.economics.harvard.edu/faculty/rogoff/files/Is_The_US_Subprime_Crisis_So_Different.pdf

[Hank]

Hm. I recall Bear Stearns bought the Enron bankruptcy claims for about half price.

Bargains everywhere you look, in this century's USA.

[kthomas]

Was the Fed action legal?

If BS was not a Bank, how can the Fed legally give money to one bank to essentially buy up a failing company that is not another bank? And moreover, the decision was made in haste, with no discussion.

IMO, the Fed acted when it had no legal right to do so. Shame on you, Mr Bernanke. Shame on you.

Also, it is my undertanding that Payne and a few others at BS have recently made very large personal property deals....an obvious attempt to sheild them from so-to-come lawsuits.

[Cynthia]

I'd like to believe that the mess on Wall Street won't spill over into Main Street. But because these two streets have become so interconnected in recent years, my hunch is that the spillage is bound to take place. I'm still holding out hope, though, that my hunch is wrong...

[evagrius]

http://articles.moneycentral.msn.com/Investing/Dispatch/080317markets.aspx;

"The past week has been an incredibly difficult time for Bear Stearns. This transaction represents the best outcome for all of our constituencies based upon the current circumstances," said Bear Stearns Chief Executive Officer Alan Schwartz in a statement. "I am incredibly proud of our employees and believe they will continue to add tremendous value to the new enterprise."

Give this guy a Nobel Prize in chutzpah.

This will "be perceived as a positive for the markets," said E. William Stone, chief investment strategist at PNC Wealth Management, to Bloomberg News. "It puts a floor under all the financials. The longer-term thesis is that the Fed won't let good companies fail based on lack of liquidity and a crisis of confidence."

And give this guy a job writing in Hollywood...

[Lafayette]

I read somewhere that now is the time to go all in in the market!

My thoughts, precisely.

This is all nonsense. The P/E ratios (at least in Europe) must be going through the roof. On the news, day after day, reports have been about European companies making profits ... and the stock market is tumbling?

That just doesn't make sense, unless one accepts that Equity Markets are Panicville and the world is collectively going of a cliff ... for no good reason.

The fundamentals aren't that bad. Yes, the US may be heading for a recession (two consecutive quarters of downturn), but, so what. The US is NOT the only customer in the world. It may no longer be, either, the driving engine to global growth.

In my part of the world, France, the junk from China is still selling like hotcakes. Employment is coming down. Customer spending in Europe is dull but not retracting. Africa is making money hand over fist selling to the Chinese. The Russians are flocking into Cannes to its 5-star hotels. The Far East is booming.

No, this puzzle doesn't fit together. The US is NOT the navel of this universe. Unless one thinks it is.

[kthomas]

"...The US is NOT the navel of this universe. Unless one thinks it is."

Whuuuut? Laf buddy, was that a little anti-Americanism I just read. Very wimpy.

And BTW, the navel of the universe is somewhere in China. It used to be in Mexico.

[Patricia Shannon]

For years, the plutocrats have had their way. Don't you love the results of the wise decisions made by those super-rich plutocrats, who prove by their riches how competent they are?

There are two possibilities:
(1) They are actually stupid and incompetent (except at getting money for themselves)
(2) The failure of the U.S. economy was planned by them because it profits them.

Morally, I wouldn't put (2) past them, but my experience and observations are that the answer is (1).

[Patricia Shannon]

Actually, I think it's a mixture of (1) and (2)

[Patricia Shannon]

Dang, I wish we could go back and delete or correct our comments. I should have gone back and re-read my 1st comment before commenting on it!
Actually, I doubt the plutocrats are smart enough for (2). I just think they care only about their own pockets, and are too stupid to see the ultimate consequences of their actions. They remind me of Atlanta drivers!

[esb]

Patricia Shannon:

You are a very interesting person (Waffle House waitress, indeed), although I doubt that Richard theBruce Cheney would agree, nor would he be happy to see you at one of his frequent Reynolds Plantation visits.

[Patricia Shannon]

esb
Well, I'm not the only one. A friend of mine with 25 years of experience in IT ended up working 3 years as a teaching assistant, the first year as a substitute. After saving the economy of the world by working hard for several years fixing the Y2K problem, we were thrown in the traxh. We were able to get back into IT because people our age started retiring, and younger people didn't want to spend time and money getting a degree in a field where they would have a hard time getting a job after they were 45, so they were forced to hire us back. The last place I worked is outsourcing to India as much as possible. Some of my out-sourced co-workers weren't eligible for unemployment because they had only worked 5 months in the past year. I was lucky that I got a job before my last one ended where I'm getting to learn PC stuff. I'm making less than half what I was last year, which was half what some of my co-workers where getting, but it's 3 times as much as Waffle House, and I'm enjoying learning new things.

Big business, eg., Bill Gates, is trying to get all limits removed on high-tech visas. Then they can throw us in the trash for good.

[esb]

If you are located on the Marietta side of the metroplex (or even if you are not), perhaps you would care to comment on the residential RE (existing and new) situation there, particularly considering the new water situation.

Good, bad, ugly, uglier ugliest?

[Patricia Shannon]

I'm in Gwinnett County, on the east.
I'm sorry I don't know what RE stands for in this context.
Sounds like it has to do with housing prices?
People I know who are trying to sell their houses aren't finding buyers. Some are willing to move to get a job, but can't sell their house.

[James Killus]

I've noticed a certain, shall we say, radicalization of my thinking as I've been posting here over the past several years. I was wondering whether or not it was just me.

Reading the postings here, I can confirm: it's not just me.

[Hank]

It's not just you.

"To discover the true meaning of the "political and economic principles" that are declared to be "the wave of the future," it is of course necessary to go beyond rhetorical flourishes and public pronouncements and to investigate actual practice and the internal documentary record. Close examination of particular cases is the most rewarding path, but these must be chosen carefully to give a fair picture. There are some natural guidelines. One reasonable approach is to take the examples chosen by the proponents of the doctrines themselves, as their "strongest case." Another is to investigate the record where influence is greatest and interference least, so that we see the operative principles in their purest form."

-- Noam Chomsky, Z Magazine, November, 1997

[Lafayette]

kthomas: Laf buddy, was that a little anti-Americanism I just read. Very wimpy.

Welcome to the thread.

Now, wake up to the revelation that the paradigm has changed, and has done so permanently.

[Lafayette]

PS: Sounds like it has to do with housing prices?

Probably, but it is a good example of people blogging to themselves which is recurrent everywhere. They understand their jargon and to hell with anyone who doesn't.

It is dead simple to avoid an acronym that will be employed only once, and if used more than once define it in its first usage.

But, no, many people are just conversing with themselves. I guess they think Internet means the confines of their neighborhood. (imho ;^)

[cm]

Lafayette: The difference between "official" acronyms listed in the dictionary and colloquial and perhaps situational ones is only their degree of formality. I don't understand your leap from use of jargon to alleging arrogant elitism, except from a rhetorical or argumentative position.

[cm]

Patricia: "RE" stands for "Real Estate", that that context probably referring to the "business" aspect, not the housing stock.

[Patricia Shannon]

Well, I don't know much about the housing market here, since I'm not looking to buy or sell right away, except for the experiences of people I know personally, and from newspaper articles. I know zilch about the commercial real estate market, except that I see strip malls being built and remaining mostly empty, and already existing ones with vacancies. Our governor is trying to get people and businesses to move here; he's a Republican, so he doesn't think about how we're going to have enough water.

As for Bruce Cheney, if that's Richard (Dick) B. Cheney, I expect I would find him boring, ignorant, dumb, and morally repulsive.

[Patricia Shannon]

Lafayette, do you have a headache or something? I hope you feel better soon.

[anne]

Lafayette:

"It is dead simple to avoid an acronym that will be employed only once, and if used more than once define it in its first usage."

Agreed completely, and more so; define, define, define.

[anne]

Paul Krugman uses words most carefully but still is asked and rightfully to explain himself, which is the advantage of having a blog. Olivia Judson footnotes each of her essays for the New York Times, which may even be the only time this has been done in a newspaper.

[anne]

Notice an exchange:

http://krugman.blogs.nytimes.com/2008/03/18/fascist-octopus-blogging/

March 18, 2008

Fascist Octopus Blogging
By Paul Krugman

Judging from comments, some readers don't know that the fascist octopus singing its swan song comes from George Orwell, "Politics and the English Language," * the best essay on writing ever written.

Everything in the essay is memorable, but the section that influenced me most was Orwell's translation of a passage from the King James Bible into Greenspanspeak. The original:

"I returned and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all."

The modern version:

"Objective considerations of contemporary phenomena compel the conclusion that success or failure in competitive activities exhibits no tendency to be commensurate with innate capacity, but that a considerable element of the unpredictable must invariably be taken into account."

* http://www.mtholyoke.edu/acad/intrel/orwell46.htm

[anne]

http://krugman.blogs.nytimes.com/2008/03/15/call-the-metaphor-police/

March 15, 2008

Call the Metaphor Police!
By Paul Krugman

I've been worried for a while about the fact that, according to financial reporters, the freezing up of the credit markets is causing a financial meltdown. The world is ending in ice and fire, simultaneously. But this * is true cause for alarm:

"The self-feeding downturn now in place shows signs of becoming deeply entrenched," economists at Citigroup wrote Friday.

Uh oh. we've got a downturn that can feed itself and, at the same time, dig trenches.

The fascist octopus will sing its swan song any day now.

* http://www.nytimes.com/2008/03/16/business/16bernanke.html

[anne]

http://www.mtholyoke.edu/acad/intrel/orwell46.htm

1946

Politics and the English Language
By George Orwell

By using stale metaphors, similes, and idioms, you save much mental effort, at the cost of leaving your meaning vague, not only for your reader but for yourself. This is the significance of mixed metaphors. The sole aim of a metaphor is to call up a visual image. When these images clash -- as in "The Fascist octopus has sung its swan song, the jackboot is thrown into the melting pot" -- it can be taken as certain that the writer is not seeing a mental image of the objects he is naming; in other words he is not really thinking.

Patricia Shannon says...

I heard on the radio this morning that Joe Lewis recently bought a bunch of Bear Stearns stock, under the assumption that BS is too big to be allowed to fail, and the government would bail it out. He is opposing the proposed deal because he would lose money. I guess I just am not morally elevated enough to see how this kind of thinking and dealing shows why people like this deserve to be rich.

http://abclocal.go.com/wabc/story?section=news/business&id=6024011

JPMorgan to buy Bear Stearns for $236.2M
AP
...
Bear Stearns Cos. employees trudged boxes of their personal belongings out of the investment bank while managers from JPMorgan Chase & Co., which bought its rival on Sunday for a meager $2 a share, filed into it for the first time from their headquarters directly across the street.
It's my first job after school," said Ki Biyung, a Bear Stearns operations analyst. "It's overwhelming for me."

"I thought it was a big company, it'll be good experience," he said. "Now, after a couple of months, something like this happens."

It was an ignominious end for one of Wall Street's most storied investment banks - sold to JPMorgan for a bargain-basement $260.5 million. The deal was fast-tracked by the federal government to avoid a bankruptcy.