Why the Banks Won't Lend

Author's note: This diary can be read in conjunction with the post just below from Sean Paul, in which he quotes an 11 point Tough Love plan from market analyst Karl Denninger on how to clean up the banking system

We are reminded daily by politicians that the banks are not lending. Not just American banks, but Canadian, British, Spanish, German, Australian banks – no country has been exempt from the collapse of global financial liquidity. The assumption governments make is that it is their job to get the banks to lend again, since it is very clear that the recession is morphing into a depression if consumers and businesses cannot borrow money, and if governments find their tax revenue falling. We therefore get TARP and related programs designed to provide liquidity to banks so they can lend again, or remove bad assets from their balance sheets so they have the capital to lend again.

No one seems to be looking at the reverse side of the question: why aren’t the banks lending? The answer to this question should reveal whether all of these government programs will have any beneficial effect.

The Consumer Has Lost the Capacity to Borrow

Let’s first look at this question from the perspective of the consumer, since consumer spending in the US represents over 70% of GNP. Economists have noted a paradox in consumer behavior during the past year. Consumers have been stepping up their saving, so that the rate of saving now exceeds 3% of average disposable income, compared to a negative saving rate two years ago. The paradox is that by suddenly increasing their saving, the consumer is damaging the economy. The corresponding drop in spending is hurting retail sales and the purchase of services in a big way, leading to ripple effects on corporations which invariably turn to expense reductions and layoffs. A vicious cycle has set in – layoffs force the consumer to reduce spending even more.

How this saving splurge began is easy to see. Since the 1990s, consumers have not needed to save from their salaries or wages. Saving was done for them, first by the stock market bubble in the 1990s, and quickly thereafter by the housing bubble in this decade. The housing bubble was a much bigger event than the stock market bubble, since vastly more Americans own homes than own large stock portfolios.

As these bubbles metastasized, the consumer was taking on an unfamiliar and unrecognized exposure – market risk. Most people know that the stock market can go up or down, but the collapse of the markets in 2000 was brutal and swift, especially in technology stocks. Unfortunately, the serious losses that people experienced in the stock market did not warn them to beware market risk. The next bubble proved to be more abiding, sucking in countless millions of Americans, because no one had familiarity with market risk in housing values. The only thing anybody knew, going back even to the 1930s, is that housing values never went down. This became the mantra of the 00’s, and only a minority of observers noted that housing values were rising at double digit rates, and if they did go down, the result would be catastrophic.

Housing values peaked in the US in late 2007, and historical experience proved to be both fruitless and dangerous. Housing values could and did decline, and the vicious economic cycle set in that has led to this depression. Greed has been replaced by a deep and powerful fear. People are far less wealthy than two years ago, for many their retirement is in jeopardy, for growing millions of workers their jobs are being eliminated, and for everyone else there is daily concern whether they will be next on the unemployment lines.

There is no longer a meaningful welfare program in the US, and unemployment insurance does not last long. The only recourse the consumer has for protection in this depression is to increase their savings. The consumer owns no other assets that can be bubbleized beyond their 401ks and their home, so savings must come from disposable income, which has been stagnant for at least ten years and shows no signs of increasing during a depression. The inescapable corollary to increasing saving, given these conditions, is that spending must be reduced commensurately.

The long term historical rate of saving for consumers exceeds 8% of disposable income, and if this standard is applied today (and given how many baby boomers are nearing retirement, you could argue a higher rate of saving is necessary), then spending must continue to decrease over the coming years. Therefore, this depression will inevitably linger and worsen, and as it does, the capacity of the consumer to borrow money shrinks, because there is no disposable income left to service a new loan (whether it is auto, credit card, home equity loans, or any other consumer borrowing).

The banking industry goes into this situation already crippled from injudicious lending in the home mortgage market. As the industry looks around for alternative ways to make money, it discovers default rates on consumer loans are rising – there was a report today, for example, predicting that over 10% of all credit card loans will enter default, which would be a record default rate for credit cards. That means that the pool of creditworthy borrowers is contracting. Worse still, these potential borrowers are on a glide path to ever higher amounts of saving from their disposable income (which is also shrinking, by the way), so they don’t have the cash flow to service new debt.

What we are seeing, therefore, is an economy that is deflating to a level that will allow the consumer to save at least 8% of their disposable income every year, plus have some cash flow left over to be used to pay principal and interest on consumer loans. Economists can do any number of studies to figure out what the equilibrium level of GNP would be to allow this to happen, but there is an easier way to think about it. We need to return to the days when the consumer did in fact save over 8% a year, have enough to pay down a mortgage (after putting 20% cash down on the purchase of the home), and purchase one car. The last time the consumer was able to do this was about 1992.

So, the economy needs to be much smaller than it is now if consumers are going to live off their income and not their assets. As we work our way to that level of economic activity, bank lending must and will remain stagnant. No amount of government money will be used by the banks to lend to the consumer in a significant way, because there is no economic justification for making loans that cannot be repaid solely from personal income.

The government can force the issue by nationalizing the banks and mandating that they make uneconomic loans, backed by a federal government guaranty against loss. But even here, the government can only provide a drop in the bucket against what must invariably be a $20 or $30 trillion drop in economic activity over the next five years (this is the incremental 5% savings of disposable income necessary to get the country to at least an 8% saving rate) .

In short, we are throwing our money away with these bank programs. They cannot stimulate consumer borrowing or consumer spending. The banks are effectively out of the consumer lending business until this country reaches a new economic equilibrium whereby a reasonable rate of saving from disposable income is set aside every year, while also allowing the consumer some left over income to pay off loans. This will take years to accomplish, possibly until the middle of the next decade.

Business is Over-indebted as Well

We don’t need to analyze too deeply the situation facing businesses, because they are in very similar straits to the consumer. The level of debt taken on this decade alone has forced nearly three-quarters of all public corporations into the junk bond category, which says that their bond issues have a very high chance of defaulting. In fact, a number of economic analyses suggest the default rate on junk bonds will soon move into the double digits, very much like credit card loans.

These corporations, like the consumer, have financed their growth through loans, rather than through the cash flow generated by their normal operations. A good many of the corporate giants, such as General Electric, Sears, the auto companies, and others, have lived for years off the income from their financing operations because their traditional businesses have faced sharply reduced profit margins as a result of intense global competition. Now, the financial arms of these companies are suffering the same default problems as the banks, and are dragging the rest of the corporation down too.

Corporations need to find that right level of activity where they can grow through cash generated by their basic businesses, rather than through debt or through pretending to be banks. As with the consumer, the last time American corporations enjoyed such a healthy financial condition was in the early to mid 1990s. Similarly, corporations will be borrowing far less than in recent years, so they will need the banks to provide short term loans, help with bringing bond issues to market, and facilitate trade finance or the occasional acquisition. No more need for complex swap and option strategies, and leveraged buyouts will be a thing of the past.

How Will This Process Play Out?

The reason why this process could take so long is that corporations will continue to face competition from China, India, and other low-cost countries. They have coped with this competition by giving in – setting up manufacturing in the very countries which are eroding their market share. But this game is nearly played out, and at a high cost as well, since technology and innovation has to be transferred to the host country (or is often leaked or stolen by the competition). Corporations will have to invest heavily in research and development to keep the playing field level, and R&D is a critical area that has been starved for funds in recent years.

The consumer has similar problems in restoring their cash flows to a healthy level. A large number of consumers are entering retirement, and most of them have less than $100,000 in retirement funds (hardly enough to sustain them for ten or more years in retirement). Those who do have savings are already drawing them down. The working population will therefore be assuming a larger and larger burden in supporting the elderly.

You can see, then, that this process of restoring consumers and business to a financial condition not dependent on debt for growth will take years to accomplish. There is no easy way to accomplish this, and there is no avoiding the pain associated with this devolution to a smaller, better balanced economy. Why, then, do our leaders, such as President Obama, Timothy Geithner, Ben Bernanke, and Barney Frank, insist on useless efforts to stimulate lending and consumer purchasing?

The answer probably requires a psychologist, but it does seem evident that our elites, including business moguls and the media, cannot face up to what is obvious and inevitable. Everyone is into the stale solutions of the past, which are counterproductive in this depression, and our leaders are into pain avoidance at all costs.

The problem here is that such blindness results in even worse pain down the road. As money is squandered on TARP programs and mindless efforts to get banks to do what they cannot do (lend money, that is), it is no longer available for the real needs of the people. In a depression, these are primal needs: security, housing, food, medicine, warmth, transportation.

The capacity of the United States government to add trillions of dollars of new debt year after year is not infinite, even though our government officials act as if that is the case. Every new Treasury security that is issued crowds out the borrowing needs of other governments, and eventually meets up with the capacity of investors to buy such paper. The greatest risk facing the US now is that this capacity will dry up, suddenly and without warning, forcing long term rates in the US much higher, and making the depression even more severe than imaginable.

Far better for the government to preserve its borrowing capacity, which is currently the last source of credit available to the US economy, for the much more serious primal needs that are becoming more urgent for millions of Americans. Far better for other governments to do the same. This is a time to allow the natural process of restoring the economy to equilibrium to play out, because this will happen inevitably, and it will only be made worse if government tries to forestall the trauma that is ahead of us.

Numerian February 20, 2009 - 9:45am

Numerian's diary | printer friendly version |

( categories: Miscellany | Agonist Exclusives | Global Financial Crisis | The Markets )

one nit pick

we save @ 20% of our income on SS and Medicare. reduce the bennies, keep the rate, stick it in the private market, problem solved.

if you can stop that plan, I'm down w/ ya.

dk February 20, 2009 - 10:17am

Econ 101

Go here for those of you who are laymen when it comes to economics. It's very simplistic, but helps give us a grasp of what has happened and continues to happen.

If I had wanted cream and sugar, then why order the damn coffee?

Rook February 20, 2009 - 10:24am

Wonderful, Rook!

Very good vids for the economically challenged. Thanks!

_{Tolerating prostitution is tolerating abuse and torture of women and children.}

adrena February 21, 2009 - 11:39am

FWIW

Elizabeth Warren recommends a household budget that is 50% must-pay necessities, 20% savings and 30% discretionary. Hearing on NPR this morning that Social Security will be cut makes me want to push that savings goal to 30%.

someofparts February 20, 2009 - 1:26pm

Summary and observations

What I believe Numerian and others are saying is that what is required to get the economy back to an equilibrium state of aggregate supply and aggregate demand is a reset.

This process is like a computer rebooting. First, there is the "shock" of the system shutting itself down, then the invisible preparation to reload, then the loading of the various modules, and only after a considerable wait can one begin to use the applications again. We are looking at some time for this reset to take place.

This reset is taking place automatically and subliminally as US consumers/workers shift from a debt-finance spendthrift mind set to a savings frugality mind set. However, consumers/workers are conflicted about this. They also want the economy to return to something resembling its previous dislocated state, which was far from equilibrium.

The reason it was far from equilibrium is that excessive leverage skewed both consumer demand and business expenditure, resulting in global overcapacity on one hand and unsustainable debt on the other.

The only sustainable solution is to allow those dislocations to dissipate through economic contraction and correction of excess. This involves economic, social and political factors.

Certainly, the Obama economic team knows this but isn't saying it too loudly yet because it is still unpopular politically. The popular mind set has to consciously adjust in order for the politics to change. The GOP is wedded to the status quo ante, and so they are clueless in the present environment, relegated to fanning false hopes and expectations with no program to turn the clock back.

However, if you listen closely, what is being said is not that the US is going to return to the status quo ante, which it is not, but the government intervention is designed to break the fall and ease the pain of transition to a new equilibrium state that will be different from the previous bubble state.

Economic historians hypothesize on the basis of evidence that trends converge on the historical mean. If that is the case there is considerable adjustment to come.

There is eventually going to be a "truth commission" to determine how we got here and what needs to be done about it. The good news is that this is a global realization, and it is the first sign of the world's taking a conscious step in globalization.

The problem arose because Wall Street argued with some evidence that deregulation was hampering US interests internationally. The solution was laissez-faire competition that seeks national advantage. This resulted in a global meltdown.

This is now recognized, and the various government realize that a new set of global rules needs to be put into place to prevent system collapse.

Incidentally, Austria is dangerously close to going under. Recall that it was the Credit Anstalt collapse in 1931 that brought Austria to its knees and exacerbated the Great (Global) Depression that brought Hitler to power in 1933. (See Brad De Long, Slouching Towards Utopia?: The Economic History of the Twentieth Century -XIV. The Great Crash and the Great Slump.) Just sayin'.

In the US systemic collapse was incentivized by the "too big too fail" doctrine that the financiers relied on, creating an unacceptable degree of moral hazard that encouraged them to discount systemic risk to practically zero. That has to change or the next crisis will be even worse than this one — and an inevitable consequence.

There is also rampant fraud in the system that has to be addressed. So far there has been no accountability. This has undermined trust in the entire financial and political system. This has to be fixed, too, but so far, there is no political will, given the magnitude of the other problems that the country and world are facing.

Here is the problem with the fixes that people like Denninger suggest. (I'm talking about fraud prosecutions, not the plan that SPK posted below.) The issues that require attention are so vast that it would take an army of lawyers, accountants, judges, and bureaucrats, and billions of dollars to address them, as well as a lot of will that is necessary for more pressing problems, lest the system destruct. While I agree with the sentiment, this is a priority that is down the line. We can't even get agreement on the investigation of admitted war crimes.

tjfxh February 20, 2009 - 1:29pm

how long have they been tinkering w/ Basel II?

really good summary. quit hiding your light under a bushel. this comment is post worthy.

dk February 21, 2009 - 7:43am

It is hard to manage to systemic risk

The individual bank simply doesn't know the risk positions of the other banks. It can only guess what may be building up elsewhere. This doesn't even include non-bank players like Enron and AIG, which are not regulated by anybody and don't have to publish any information.

On the other hand, the risk management departments of banks don't make an effort to even guess at risks building up in the system. It is really amazing that not one major bank stepped backed and said "this product is growing at double digit rates (or geometric or exponential rates), which are unsustainable and which will come crashing down at some point. We are getting out of it now to avoid problems."

Banks do occasionally leave products because the returns have deteriorated for what they perceive as the risks, but this is not typical. The business managers can usually convince the CEO that the risks are tolerable, and at some point the sheer size of the profits becomes too large to forego, overwhelming any arguments about risk/return.

The regulators operate within their nationalistic shell and share a modicum of information at the BIS. But there is no central global regulator to demand better, more complete information, who can then monitor systemic risk. If there were, there is a question of what authority they could wield to force the banks to slow down or shut down a product.

The only exception to this now is the FX clearing house in London, which does see most of the trades of the market and displays systemic risk for the central bankers. FX is the largest trading product there is, and it is interesting there hasn't been a hint of a problem with this product during the crisis. The lesson is that regulators are going to have to force almost all trading products into clearing houses if they want to deal with systemic risk.

Numerian February 21, 2009 - 10:28am

Systemic risk

It is hard to manage to systemic risk

....The enormous amount of derivatives that had poured into the market—there are close to $600 trillion of these papers around—are also not recorded in a global or centralized manner, or in a manner that allows you to begin to quantify them. [Former SEC Chairman Christopher] Cox thought that maybe the toxic part of all of these assets was $1 trillion to $2 trillion. [Treasury Secretary Timothy] Geithner told us there's maybe $3 trillion or $4 trillion. Nobody really knows, so in a way [they've created an] informal or shadow economy. This unidentified paper is the source of uncertainty and the credit contraction.

...That shadow hopefully is a temporary condition in the United States and in Western Europe. And it might pass in a year or 10 years, but it will pass.
Marginal Revolution

You can bet that after this crisis, the world financial system is going to put lot of effort into figuring this out. There are only three solutions in the long run. Either governments guarantee everything upfront or some mechanism for assessing risk gets put in place or entities too big to fail are disallowed. Otherwise, the trust won't be there. Of course, if everything is government guaranteed that greatly increases moral hazard and incentivizes excessive risk-taking. I doubt that that too big to fail will be implemented. So there is going to be some mechanism developed for assessing systemic risk.

Warren Buffett saw this coming long before and warned about financial WMD. The Fed and other CB's are in the position to know and to take action. They just kept pouring fuel on the fire instead.

anks do occasionally leave products because the returns have deteriorated for what they perceive as the risks, but this is not typical. The business managers can usually convince the CEO that the risks are tolerable, and at some point the sheer size of the profits becomes too large to forego, overwhelming any arguments about risk/return.

And these guys should therefore be summarily fired. Jamie Dimon got it.

If globalization is going to go forward, they are going to have to work this out. As you say, FX is a system that works well, largely because of transparency of dealing through clearing houses.

The lesson is that regulators are going to have to force almost all trading products into clearing houses if they want to deal with systemic risk.

Financial institutions may resist this, but it seems that the market will demand it if trust is to be restored. Right now credibility of institutions and governments is close to zero.

Many are wondering why gold is taking off in a deflationary environment. It's likely that this lack of trust. is a big factor. Moreover, physical possession commands a premium over spot. Another indicator of lack of trust in the system, which a lot of people now see as coming apart.

XLINK

tjfxh February 21, 2009 - 1:24pm

Patches

Lending in China has increased.

Actually the mortgage base has been expanding here continuously. I mean, the recession started here after Christmas and I don't know the statistics for January.

One of the reasons for contracting lending is the increased "credit score" requirement. The US government could bind lending requirement and access to bailout money to each others easily.

Retail sales were up in the USA in January. (They might be down in February because the consumer confidence seems to be down again.)

What comes to saving rate, I mostly agree. Inflation will smooth the impact to retail sales in the end of the year.

_{--Sell Alaska to China!}

Singular February 20, 2009 - 4:08pm

Overcapacity in China is huge

Lending is for expansion, and China is already overbuilt. Ordinary people are savers, not borrowers and the consumer economy is anemic at best.

See Inside ChinaI over at Mish's

tjfxh February 21, 2009 - 1:28pm

I think we will be able to see from

the Flow of Funds data if the central banks can induce borrowing again or if they can't. I don't think they can. The elite is caught up in this silliness and won't give up the ghost. They don't know how to do business other than to lend. They don't understand investing other than to leverage. They are just all wrong.

Term limits anyone?

http://mauberly.blogspot.com/

mauberly February 20, 2009 - 11:29pm

for bankers?

ok. just get rid of the Fed, it'll be so much easier.
look to Andrew Jackson for inspiration.

dk February 21, 2009 - 7:51am

for the Frankos and Doddoes

as well.

http://mauberly.blogspot.com/

mauberly February 22, 2009 - 12:04am

reduce the power of the bankers

outlaw lobbyists, establish true public financing of elections, and ya might have a c-critter worth keeping. as the situation currently stands, the banks could keep sticking their representatives in office every two years, just change the face. what we need are our* representatives in congress. I'd hate to see the Ron Paul's and Dennis Kucinich's and Robert Byrd's have to leave because of some arbitrary time schedule. (*not an endorsement of any candidate

dk February 22, 2009 - 6:38am

Great analysis

One big problem: how the fuck is someone supposed to save anything when they're making $24,000 a year or less?
America on $195 a Week

Is there not an option for increasing incomes?

Tony Wikrent February 21, 2009 - 1:18am

the language in that article

is half the problem. unskilled, grimy, handout. such negative connotations w/ being less than lily white white bread middle class.

what's wrong w/ the dollar store, the thrift store, collecting aluminum for scrap, stretching a dollar, bargain hunting, waste not / want not, poor but proud?

I swear, you'd think these people that write such articles, never had grandparents that taught 'em anything. Worse than being raised by wolves, they've been raised by advertising.

dk February 21, 2009 - 6:38am

no option to increase wages

except inflation. deflation is going to be the better option, the top income bracket is just gonna hafta skim less cream off the top. we need to shame them into paying higher taxes or a more equitable pay structure. or both.

dk February 21, 2009 - 7:02am

Killing the goose that lays the golden egg

Increasing incomes would be simple if productivity gains had been shared with workers over the past three decades. Even though productivity rose dramatically, most of it went to corporate profits instead of wage gains.

The effect of this was to either reduce consumer spending, which would have resulted in overcapacity and lack of growth, or increase consumer debt to unsustainable levels to (falsely) equilibrate aggregate demand and aggregate supply.

This unsustainable debt was securitized and sold around the world, and a global house of cards was built on this false equilibration. The resulting shock cratered aggregate demand as consumers were tapped out and couldn't service the debt. Now inventories are building, business is cutting back, unemployment is increasing, and many businesses cannot service their debt either.

Now the debt is imploding and the whole financial system is unwinding, taking down the entire global economy. And this is just the beginning. Volcker is saying that he believes that capitalism will survive, but maybe not financial capitalism, i.e., financial capitalism based on financial engineering.

But remember "greed is good."

tjfxh February 21, 2009 - 1:39pm

tj, maub, numer, anybody figure out who's holding the bag, yet?

I still don't think it's the big US/UK banks. My wild ass guess is that it's mostly China and pensioners. Is there evidence yet, that the banks still have these assets on their books, and hadn't handed the hot potato off to the next sucker? You know Morgan Stanley and Goldman Sachs knew damn well what they were doing. Is any scrutiny being placed on them? BOA and Countrywide and Wells fargo, etc may have been putting together large pools of MBS, but they weren't writing the CDS squared. were they really buying them? it does explain BOA buying Merrill. link

I'm too busy to do much more than read the headlines at 4am, so whatcha got guys?

dk February 22, 2009 - 6:50am

I don't think China is holding any of this junk

The government of China kept their reserves in Treasuries and agency paper (Fannie and Freddie), and after some not-so-polite pressure last year, they got all of their agency paper upgraded with a full guarantee of the US government. Hillary is over their today as we write trying to convince China to buy more of this stuff.

As to the CDOs, CDSs, mortgage-backed paper, etc., it looks to me like this paper was traded incestuously within the financial industry, with an occasional "end user" purchasing some. The financial industry consists of the banks, investment banks, hedge funds, mutual funds, and wannabes like AIG that were all issuers as well as buyers. The end users didn't issue, they just bought for the long term. That would be pension plans, endowments, private equity, and some types of mutual funds.

The mistake the banks made is that they thought this merry-go-round would last forever, and they could always dump their paper on someone else before the music stopped. Some like Merrill Lynch thought they were being super conservative by keeping only the Aaa rated paper (boy were they fooled). A few like Charles Prince of Citigroup knew the music was going to stop some day, but said that they had to remain as playas because it was some sort of social obligation they had being so big and powerful.

The end users were looking for higher yields and often invested indirectly through participation with hedge funds. Players like Harvard University are sitting on billions of this paper and something like a 25% loss on their endowment so far.

This merry-go-round analogy I find very useful, because the machinery is now permanently broken. Without the merry-go-round of financial institutions selling among themselves, there are no buyers. The end users certainly aren't interested in any more trash paper, and many of the financial companies that were big and bad in this business have disappeared.

The lesson here for Barack Obama and Timothy Geithner is that the market cannot be restored. The buyers will never return because it was largely a closed-loop structure that built up a higher and higher mountain of securities in a mad rush by the players to leverage their capital, returns, and bonuses.

I await the "moment of recognition" when Washington comprehends this fact. It may come soon; Geithner's plan to sell this paper to vulture funds at anywhere near the prices the banks want is doomed to failure and he might realize that in a few months. To the extent there are buyers out there, they will take on these securities for 3 to 5 cents on the dollar, and they will only buy a little of it, leaving the banks insolvent if they actually sold at these prices.

There is nothing for it. This paper is going the way of Confederacy notes and 19th century railroad bonds. A lot of out-of-work bankers will have lucite tombstones as their only thing of value left over from this orgy.

Numerian February 22, 2009 - 11:12am

lucite tombstones?

is that the bullet proof glass the tellers stand behind?
that's funny!
I've never heard the phrase.

so when do I get to buy these assets at $.03 on the dollar? and HOW?
(just kidding. really, I just wanna feed people.) I don't know the value of the underlying assets of these products, but show me a house that I can buy at 3-5% of its bubble price and I'm in :)

hopefully we're not talking past one another but this:

As to the CDOs, CDSs, mortgage-backed paper, etc., it looks to me like this paper was traded incestuously within the financial industry, with an occasional "end user" purchasing some.

is exactly my point. the big boys can just "net" it out amongst themselves. Am I clear? sorry, I don't know the lingo very well. but if the majority of swaps is within 4-5 big banks, basically they can just call them null and void. This has already been discussed here, yes? so why all the show @ vulture funds? they're not going to buy Harvard's assets, Harvard has more sense than to sell them at these prices I would hope. 'trading sardine's for lunch, anyone? People really are willing or needing to dump these products at such ridicously low prices, ...still? I would think it'd be cleared by now.
I think it is cleared now. all the rest is just show, for the remaining bagholders; ie, you and me.

goddam, someone look at Goldman Sacks and MS today. now that they are commercial banks w/ FDIC ins. aren't their books supposed to be more transparent?

dk February 23, 2009 - 6:11am

speaking of Goldman- this is hilarious

http://money.cnn.com/news/newsfeeds/articles/djf500/200902181539DOWJONESDJONLINE000889_FORTUNE5.htm#

just read it. someone doesn't want to be Congress's whipping boy.
I Sho Spensive--hilarious. I hope he's black, otherwise the press should rightfully crucify him for that joke. It's funny, but soooooo wrong.

dk February 23, 2009 - 6:37am

Just happened across this: A History of Home Values

The link was disembodied - haven't found the article yet.

_{They sicken of the calm, who knew the storm.}

Raja February 23, 2009 - 8:44am

I'd like to see a chart

of the cost of a house w/ all the interst payments added in by the time you actually own it. I would imagine that explains the low prices on houses during the 20's housing boom. It was the first time credit, kinda, was extended to the working class to buy homes. horrible, horrible rates tho. they were all 5 year arms. you had to refinance every 5 years, and look out when the market froze in '29, you couldn't refinance, people were foreclosed on and thrown out left and right. (Watch It's a Wonderful Life more closely, it's all about banking. so is Scrooge) that's how we got Fannie Mae and amortizing 30 year loans under FDR in the first place. I'm mushing it together quite a bit, so details may be off a little, but that's the gist. same thing now. they stoppped extending credit. we've seen this movie before. those that don't know history.....I wish I knew more ...
but Tanta died :(

that spike you see in this chart 95-2005, was when they threw lending criteria out the window, not loans to the people w/ incomes, but loans to any signature, real or otherwise. but it's about the flow of credit, that's where the price of homes comes from. the price of credit, well that's another can of worms

dk February 23, 2009 - 9:17am

Tombstones have a long history on Wall Street

Investment banks would take ads out in the financial press bragging about their most recent bond or equity issues that they managed. They would identify the company, assuming it was worth crowing about, and list the other banks in the syndicate in descending order of their importance to the deal. The black border around these ads gave them their name tombstones.

The investment bankers would festoon their office walls with framed copies of these ads like they were war trophies. Then someone got the idea of enshrining a reduced version of the ad into a lucite block. It was cheap, but looked impressive on your desk, and lots of people could get one.

Hence the term lucite tombstones.

Numerian February 23, 2009 - 12:02pm

After the crash, Iceland's women lead the rescue

Iceland's spectacular meltdown was caused by a banking and business culture that was buccaneering, reckless - and overwhelmingly male. Business editor Ruth Sunderland travelled to Reykjavik to meet the women now running the country, and heard how they are determined to reinvent business and society by injecting values of openness, fairness and social responsibility

On Bondadagur, or Husband's Day, the menfolk of Iceland are spoiled by their wives and girlfriends, who serve them with traditional delicacies such as ram's testicles and sheep's head jelly, a recipe for which is handily included in the latest online edition of Iceland Review, alongside the latest bulletins on the economic meltdown.

Icelandic women, however, are more likely to be studying the financial news than the recipes - and more likely to be thinking about how to put right the mess their men have made of the banking system than about cooking them comfort food. The tiny nation, with a population of just over 300,000 people, has been overwhelmed by an economic disaster that is threatening its very survival. But for a generation of fortysomething women, the havoc is translating into an opportunity to step into the positions vacated by the men blamed for the crisis, and to play a leading role in creating a more balanced economy, which, they argue, should incorporate overtly feminine values.

The ruling male elite is scarcely in a position to argue. The krona has collapsed; interest rates and inflation have soared; companies and households which have borrowed in foreign currency are overwhelmed by their debts and unemployment is at record levels. An exodus of young people is feared from the capital only recently held up as a centre of cutting-edge cool. Walking along Laugavegur, touted until a year or so ago as the Bond Street of Reykjavik, the gloom is palpable.
More

_{Tolerating prostitution is tolerating abuse and torture of women and children.}

adrena February 22, 2009 - 1:43pm

It's all good

Men are in a minority at Audur, but Tómasdóttir is keen to hire more. "There are fewer of them, but they are not tokens, we have hired them on merit. Now, if we have two equally competent people, we would positively discriminate in favour of the man because we want balance," she says, without a flicker of irony.

Together they can do it - heal the financial system, that is.

_{Tolerating prostitution is tolerating abuse and torture of women and children.}

adrena February 23, 2009 - 12:06am

Exceptoinal - for the dilemmas it poses

This is one of the best statements of the dilemmas and ultimate conundrum that we're experiencing. You said: "The answer probably requires a psychologist, but it does seem evident that our elites, including business moguls and the media, cannot face up to what is obvious and inevitable. Everyone is into the stale solutions of the past, which are counterproductive in this depression, and our leaders are into pain avoidance at all costs."

Well, that depends on which psychologist, but the right one might say that it's time to question the assumptions behind every step that is taken. Your explanation of the problems of pulling us out of this is clear.

There are a bunch of dead ends. But the one path through much of this is to ask questions like this: Why are we propping up a banking system that produced the current crisis, if by nothing else than a lack of values, and that will be run by the same people who got us to our current crisis? What is meaningful about paying back the loans to these banks, in part, as seems to be the priority of the rescue plan, when there is a strong argument that any debt from the contrived housing bubble, deliberately set in place, should be canceled out since they're based on either a) fraud or b) negligence?

The mid term prospects for competing with China and India are, tragically, going to be helped by the catastrophes of global warming. While we'll be hit noticeably, those nations will be devastated since they rely on coastal cities. Cheap labor matters little when the society is in chaos.

China and India will see huge disruptions in their major cities as a result of sea level changes, accelerating at rates much faster than anticipated, while we'll lose Florida. It's really awful to contemplate all of this.

Michael Collins February 23, 2009 - 1:57am

Mother Nature Bats Last

As the bumper sticker says. The havoc in the biological and physical systems of the planet really make the current financial mess look rather orderly.

JT February 23, 2009 - 11:43pm

U.S. to Invite The Wealthy To Invest in The Bailout

Washington Post, By David Cho, March 6

The government is seeking to resuscitate the nation's crippled financial system by forging an alliance with the very outfits that most benefited from the bonanza preceding the collapse of the credit markets: hedge funds and private-equity firms.

The initiative to revive the consumer lending business, outlined by officials this week, offers these wealthy investors a new chance to make sizable profits -- but, thanks to the government, without the risk of massive losses.

The idea is to entice them to put their huge cash piles to work to stimulate the financial system. They would be invited to buy up recently issued, highly rated securities. These securities finance consumer lending, such as credit cards and student and auto loans.

The program, which could involve the government lending nearly $1 trillion to these investors, exceeds the size of every other federal effort to address the crisis so far. The initiative's approach could be the model for future federal efforts to aid the credit markets, sources familiar with government planning said. Officials call this strategy a "public-private partnership," but in essence the government is offering good deals to private investors to draw them into its rescue efforts.

Architects of this initiative have long been sensitive to the political challenges of teaming up with hedge fund managers and private-equity firms. But officials see these private investors as among the few who have ample cash available...

Bwaaahhhaahaahaha - Raja

_{They sicken of the calm, who knew the storm.}

Raja March 6, 2009 - 10:02am

wtf

can we at least raise their taxes? I'm hearing rumblings on walking back the tax increases. Words don't describe how much this investment plan pisses me off.

_{"Go confidently in the direction of your dreams! Live the life you've imagined." -Henry David Thoreau}

Tina March 6, 2009 - 10:10am

Search

latest

User login

Navigation

Create new account

Team Agonist

Thoughtful

Global

Timely

Who's online

Online users:

Syndicate

Why the Banks Won't Lend

Comment viewing options

Premium Advertising

Our Friends

Agonist Page on FaceBook

Agonist Facebook Activity