Greenspan Says Crisis May Be `Once in Century' Event (Update1)
``This is a once in a half century, probably once in a century type of event,'' Greenspan said. ``We shouldn't try to protect every single institution. The ordinary cost of financial change has winners and losers.''
1800
Long Depression
In the United States, the meltdown of the European economies led directly to the Panic of 1873 and ushered in the Long Depression.
Panic of 1873
Years of government-promoted speculative credit created vast overexpansion of the nation’s railroad network. The failure of the Jay Cooke bank set off a chain reaction of bank failures and temporarily closed the stock market.
1900
Great Depression
Another explanation comes from the Austrian School of economics. Austrian theorists who wrote about the Depression include Hayek and Murray Rothbard, who wrote America's Great Depression in 1963. In their view, the key cause of the Depression was the expansion of the money supply in the 1920s that led to an unsustainable credit-driven boom. In their view, the Federal Reserve, which was created in 1913, shoulders much of the blame.
2000
October 27, 2005
Bernanke: There's No Housing Bubble to Go Bust
U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.
Let's not forget the "unsustainable credit-driven boom" that we also saw in the previous two "once in a century" events. I'm surprised that wasn't mentioned. After all, the Fed did lower interest rates to 1% in 2004.
"Without these policy blunders by the Federal Reserve, there is little reason to believe that the 1929 crash would have been followed by more than a moderate dip in U.S. economic activity," Bernanke wrote.
It seems Bernanke's finding some difficulty these days sustaining an unsustainable credit-driven boom. Go figure.
``This is a once in a half century, probably once in a century type of event,'' Greenspan said. ``We shouldn't try to protect every single institution. The ordinary cost of financial change has winners and losers.''
1800
Long Depression
In the United States, the meltdown of the European economies led directly to the Panic of 1873 and ushered in the Long Depression.
Panic of 1873
Years of government-promoted speculative credit created vast overexpansion of the nation’s railroad network. The failure of the Jay Cooke bank set off a chain reaction of bank failures and temporarily closed the stock market.
1900
Great Depression
Another explanation comes from the Austrian School of economics. Austrian theorists who wrote about the Depression include Hayek and Murray Rothbard, who wrote America's Great Depression in 1963. In their view, the key cause of the Depression was the expansion of the money supply in the 1920s that led to an unsustainable credit-driven boom. In their view, the Federal Reserve, which was created in 1913, shoulders much of the blame.
2000
October 27, 2005
Bernanke: There's No Housing Bubble to Go Bust
U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.
Let's not forget the "unsustainable credit-driven boom" that we also saw in the previous two "once in a century" events. I'm surprised that wasn't mentioned. After all, the Fed did lower interest rates to 1% in 2004.
"Without these policy blunders by the Federal Reserve, there is little reason to believe that the 1929 crash would have been followed by more than a moderate dip in U.S. economic activity," Bernanke wrote.
It seems Bernanke's finding some difficulty these days sustaining an unsustainable credit-driven boom. Go figure.
The more these clowns do to try and stop the correction the worse this will get.
ReplyDeleteKevin
Stag,
ReplyDeleteFrom your link for the Long Depression:
Naturally, the cycle repeated itself with another huge market crash in 1893
I don't see how the fed and/or treasury can sustain the boom. The wizards of finance tried to extract way too much rent from the productive economy. The interest burden was way too large. No economy can keep up with that kind of compounding.
Anyhow, having a fed arbitrarily try to pick winners and losers doesn't seem likely to make matters better. I say, let the chips fall where they may. Life will go on.
On a bright note, I just got a good deal on a new car! Woohoo for employee pricing!
The "old grey mare" was in need of thousands just to get through inpection. I had to euthanize her despite my extreme aversion to spending at the current time.
Now that I've celebrated, the economic gods can smash my exhuberance with even better prices. What are the odds I purchased at the bottom? 100 to 1 against.
Japan and China industrial output is slowing or to put another point of view on the situation the lack of luxury consumer purchasing here in the states. Multi-national corporations may have to find alien life forms to create new markets and cheaper labor forces and soon! But the FED and Hank are keeping the illusion alive at least until the election is over that we can create structured credit products and call that productivity.
ReplyDeleteKevin,
ReplyDeleteThe more these clowns do to try and stop the correction the worse this will get.
To me, clowns aren't funny. In fact, they're kinda scary. I've wondered where this started, and I think it goes back to the time I went to the circus and a clown killed my dad. - Jack Handey
MAB,
Now that I've celebrated, the economic gods can smash my exhuberance with even better prices. What are the odds I purchased at the bottom? 100 to 1 against.
What is it that makes a complete stranger dive into an icy river to save a solid-gold baby? Maybe we'll never know. - Jack Handey
Anonymous,
But the FED and Hank are keeping the illusion alive at least until the election is over that we can create structured credit products and call that productivity.
Even though he was an enemy of mine, I had to admit that what he had accomplished was a brilliant piece of strategy. First, he punched me, then he kicked me, then he punched me again. - Jack Handey
Me...
Yep, everything reminds me of Jack Handey today. I don't know why. Perhaps it is the Lehman news or perhaps it is AIG. The contrarian in me is certain we can turn this market weakness into a strength though.
If you think a weakness can be turned into a strength, I hate to tell you this, but that's another weakness. - Jack Handey
D'oh!
Stag,
ReplyDeleteIf you think a weakness can be turned into a strength, I hate to tell you this, but that's another weakness - Too funny.
In grade school math, when I first tried to understand the concept that a negative and a negative is actually a positive my mind wouldn't accept it. Now I why.
On the Greenspan "once in a century" claim, let's hope his current streak of being wrong isn't broken. The Great Depression of the 1930s was less than 100 years ago. Double D'oh!
MAB,
ReplyDeleteSpeaking of weaknesses...
The market won't be happy until I change my name to Deflationary Mark. Being short-term inflation indifferent isn't good enough it seems (as seen in my blog's inflation mood).
Double D'oh!
The epic battle between the deflationary Great Depression's credit woes and the 1970s currency abuse and/or lack of gold standard is becoming unbalanced. Somebody better dispatch more helicopters and remind us of the monetary printing press technology again. Perhaps he could "Double Dough!"
Come to think of it, Bernanke's passion is the Great Depression. He studied it extensively. Perhaps he's simply running a real world simulation right now to fully understand the subtle nuances.
In any event, my investments are flat today. I can't complain though. I'm performing as well as buried cash. Whew!
I did reread the TIP prospectus this morning though. I draw comfort from the following line.
The iShares Funds are not sponsored, endorsed, or issued by Lehman Brothers, nor does this company make any representation regarding the advisability of investing in the iShares Funds.
Why did I reread it? It is called the iShares Lehman TIPS Bond Fund. Don't ask me how many times I read it today though. I don't want to seem overly paranoid just because everyone's out to get me (money). ;)
Stag,
ReplyDeleteI'm seriously thinking of changing my name too. I was considering "AWOL", but now I'm thinking "Boo Radley" is more fitting. I always thought Boo was an interesting character.
And who knows, perhaps when the time is right (and I don't think we are close) I'll stop observing and come out of my bunker and give the economy and the markets a lift.
http://en.wikipedia.org/wiki/Boo_radley
Until then, I'll just marvel at the foolishness. When it comes to investing, competing with stupidity just doesn't pay.
MAB,
ReplyDeleteTo Kill a Mockingbird
I saw "Failure to Launch" a few days ago on cable. I enjoyed it.
http://www.ericdsnider.com/movies/failure-to-launch/
What's surprising is the film's dialogue, which is peppered with snappy exchanges. The MVP is Zooey Deschanel, who plays Paula's bitter lush of a roommate, Kit. In a truly kooky subplot, Kit is tormented for much of the film by a mockingbird that lives outside her window. Her efforts to get rid of it lead to this exchange with a sales clerk at a gun shop:
"You can't kill a mockingbird!"
"Why not?"
"Well, for one thing, there's that book, 'To Kill a Mockingbird'!"
"OK, I'll take a copy, right here."
"No, it's not an instruction manual.... How do you not know the book 'To Kill a Mockingbird'?"
"I know other things."
I'll just marvel at the foolishness
ReplyDeleteYour post made me realize that "marvel" is the wrong word. Heckel is better. Mocking is bettterer still.
Boo Radley describes me on many levels.
One more thought, a bunch of retirement plans just got poned. My town is in utter shell shock.
MAB,
ReplyDeleteOne more thought, a bunch of retirement plans just got poned. My town is in utter shell shock.
I stayed up all night watching the poning. Unfortunately, I thought things stabilized around noon and went to bed. 90 minutes later I woke up and flipped on the radio. Talk about irony. The "breaking" news was actually describing the breaking. I seem to have this awful habit of not being pessimistic enough. Go figure.
Mocking is bettterer still.
I'm having blog naming remorse again today. I could have called it...
To Shill a Mockery
Stag,
ReplyDeleteThe tomfoolery continues. Today in the mail, I received two very "interesting" financial offers.
The first was an invitation from Merrill Lynch to a very elegant Italian restaurant in our town. In addition to a free meal, the invitation includes a retirement and financial strategies seminar. Since I'm not already a client, it seems that Merrill is out trolling for recently poned investors.
The second was a faux hand written invite from Armando Montelongo - the "star" of A&E's "Flip This House." Apparently, Armando's new gig involves foreclosures and promises to make me a "high profit flipping machine." This invite is especially enticing as it includes $250 worth of free gasoline. What could be better than that!
Clearly, some highly "successful" people still feel the something for nothing crowd has yet to be poned out of all their money.
MAB,
ReplyDeleteWow! Today must be royal treatment day. You are not alone.
The phone rang at 10am this morning. According to my Caller ID, the call was from Fort Lauderdale, Florida. I couldn't imagine who would be calling me from there. I picked up.
The automated voice assured me that there was no problem with my credit but I am eligible for a lower interest rate.
I felt pretty darned special getting a call from the Venice of America (and one of the apparent epicenters of the subprime crisis), let me tell you. It made me feel very sophisticated and affluent.
Fort Lauderdale, Florida
http://en.wikipedia.org/wiki/Fort_Lauderdale,_Florida
Fort Lauderdale now attracts a more sophisticated and affluent tourist, while largely ignoring the dwindling college crowd.
I was thinking of driving down there to see what else Fort Lauderdale can do for me.
Some worthy buyers now frustrated by tighter lending
http://www.bnd.com/business/story/455371.html
To top it off, investors who buy mortgages in the secondary market are leery of buying loans originating in South Florida, where fraud has reached epidemic levels.
Doce said lenders like him had been burned by some condo developers, who in desperation to close sales misstated the rate of buyers who planned to live in the residences as opposed to investors.
Consequently, some buildings have been blacklisted. Doce said it had been impossible for him to find investors for loans for some Fort Lauderdale condominiums. High foreclosure rates are exacerbating the trend.
There's nothing I'd like more than driving 3,330 miles in two days to buy a blacklisted condo where fraud has reached epidemic levels.
http://maps.google.com/maps?source=ig&hl=en&rlz=&q=fort%20lauderdale&um=1&ie=UTF-8&sa=N&tab=wl
Stag,
ReplyDeleteFrom the link in you post:
There are certain types of institutions which are so fundamental to the functioning of the movement of savings into real investments in an economy that on very rare occasions, and this is one of them, it's desirable to prevent them from liquidating in a sharply disruptive manner,'' Greenspan said.
I've been thinking over and over about this statement. It bugs me in so many ways. But the main reason it irks me, is that I truly believe that most of our recent savings is not savings at all. Rather, it is inflation gathering.
Just how the F... is an economy supposed to save inflation. What is the point? From my dojo, inflation is anti savings. Seriously, is it me, or is Greenspan talking to Elvis? That guy has bad karate.
MAB,
ReplyDeleteBut the main reason it irks me, is that I truly believe that most of our recent savings is not savings at all. Rather, it is inflation gathering.
Inflation: The Gathering?
When house prices were inflating most people thought that was magic. It all makes sense now. No wonder I'm a believer. This has already worked out well once for me.
Magic: The Gathering
http://en.wikipedia.org/wiki/Magic_the_gathering
Reducing an opponent to zero life is the most common way of winning (or losing) the game; running out of cards and attempting to draw from an empty deck will also cause a player to lose, but it is usually more difficult to inflict this on an opponent. In addition, some cards specify other ways to win or lose the game, such as by accumulating poison counters.
Some spells have effects that override normal game rules (e.g., allow a player to play more than one land per turn, which is restricted under normal circumstances). The "Golden Rule of Magic" states that "Whenever a card's text directly contradicts the rules, the card takes precedence."[13] This allows Wizards of the Coast great flexibility in creating cards, but can cause problems when attempting to reconcile a card with the rules (or, even worse, two cards which separately alter the same rule). A detailed rulebook[14] exists to clarify these conflicts.
Each card has an illustration to represent the flavor of the card, often reflecting the setting of the expansion for which it was designed. Much of Magic's early artwork was commissioned with little specific direction or concern for visual cohesion.
Magic, like many other games, combines chance and skill. A common complaint, however, is that there is too much luck involved with the basic resource of the game: land.
Compare to...
Inflation: The Gathering
Reducing an opponent to zero liquidity is the most common way of winning (or losing) the game; running out of loans and attempting to draw from an empty bank will also cause a player to lose, but it is usually more difficult to inflict this on an opponent. In addition, some loans specify other ways to win or lose the game, such as by accumulating poison pills*.
Some investments have effects that override normal market rules (e.g., allow a player to pay for more than one land per turn, which is restricted under normal circumstances). The "Golden Rule of Inflation" states that "Whenever a loan's text directly contradicts the rules, the loan takes precedence."[13] This allows Wizards of the Financial System great flexibility in creating loans, but can cause problems when attempting to reconcile a loan with the rules (or, even worse, two loans which separately alter the same rule). A detailed rulebook[14] exists to clarify these conflicts.
Each loan has an illustration to represent the flavor of the loan, often reflecting the setting of the expansion for which it was designed. Much of Inflation's early artwork was "printed" with little specific direction or concern for visual cohesion.
Inflation, like many other games, combines chance and skill. A common complaint, however, is that there is too much luck involved with the basic resource of the game: land.
*Poison Pill
http://en.wikipedia.org/wiki/Poison_pill
The target takes on large debts in an effort to make the debt load too high to be attractive—the acquirer would eventually have to pay the debts.
Speaking of financial wizards of the coasts...
Big Banks Go Bust: America's Financial System in Crisis
http://www.alternet.org/workplace/98863/big_banks_go_bust:_america's_financial_system_in_crisis/
The financial wizards who have dominated politics and economic orthodoxy for a generation are unmasked, their delusions failed.
Delusions of Prosperity? More blog naming remorse. Close only counts in horseshoes and hand grenades.
Further, something tells me that a generation of delusions won't be undone quickly and painlessly.
Stag,
ReplyDeleteUp early again to watch the poning I see. Quite a spectacle.
Maybe you should try TIVO. That whole Pacific time thing is weird to me. I'd be lost. News, sports events, prime time. Way out of sinc from what I am used to.
From your last comment:
A common complaint, however, is that there is too much luck involved with the basic resource of the game: land.
I found these articles interesting, but they are a bit long.
http://en.wikipedia.org/wiki/Georgism
http://www.wealthandwant.com/docs/Twain_archimedes.html
Also, I've been thinking about slogans. Slogans are like sheep dogs - they steer the flock (herd). In that vein, I think "buy and hold" was ingeniously twisted out of "do as you are told".
Poning seems a natural outcome.
MAB,
ReplyDeleteAlso, I've been thinking about slogans. Slogans are like sheep dogs - they steer the flock (herd).
http://www.youtube.com/watch?v=b_ArDB7AJAI
1. Half it, your pay!
2. It keeps going down, and going down, and going down...
3. They're grrrreat depression!
4. I liked Bernanke's "it" so much I sold the company.
5. It's the real return thing!
6. I can't believe I ate the whole loss!
7. The "candy" melts down in your bank - not in your hand.
Think Burger King, Energizer, Frosted Flakes, Remington, Coca-Cola, Alka-Seltzer, and M & M's Candy (Mountain).