Comments for Goolsbee Responds to Krugman
CRbot says:
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CRbot Mon Mar 23 21:40:24 2009 CDT #
Ajax says:
Actually, Goolsbee is right. Krugman is looking at one side of the argument. Here is why.
Krugman “proves” his argument as follows: consider an asset that may be worth $150 or $50 with equal probability. The EV is = 0.5*($150) + 0.5*($50) = $100.
Now, suppose the government gives you a loan for 85% of the offer price. His point is that you will bid more than the EV so that in essence the government is providing a subsidy. How?
Suppose you offer $X to buy the asset. What is the “optimal” X? You will pay 15% of the offer or 0.15X. Krugman argues that your exposure (“cost”) should equal the gain (“benefit”) from buying the asset. Your cost is 0.15X and the upside gain is 150 - X (note how Krugman deliberately looks at the upside not the downside, nor the expected gain/loss).
Setting: 0.15 X = 150 - X → X = $130.4, or, slightly over $130 (as the article states). This represents a 30% subsidy relative to the EV of $100.
Of course, there is a slippery trick here: Krugman’s investor is offering more than the EV to purchase the asset, meaning the investor is risk loving (offer > EV). In his article, his investor is risk loving because he wants to show that when another party covers a fraction of the cost, you will behave more riskily.
But the argument would be different if the investor was risk averse (offer < EV) which is more realistic.
Perhaps Krugman's argument is best suited when the private investor is investing with other people's money: mutual and/or hedge fund managers are playing with other people’s money and will therefore take greater risks. However, the argument is not right when you're investing with your money for then you'll be more risk averse.
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Ajax Tue Mar 24 10:00:10 2009 CDT #
Crabsofsteel says:
It seems apparent to me that anything Citi could have sold, they did. All they have left are the subprime and CRE backed CDOs, or worse. If the govt gives me $97 to buy a $100 bond, and that bond gets written down to $0, I am still a goner. So Citi gets recapitalized but your pension fund gets wiped out and will need a bailout of their own.
Liddy knows AIG is going to be the world's largest fail, and you have to think Pandit suspects the same. No one in their right mind is going to want to buy their crap because the writedowns are baked into the cake. My guess is that PIMCO and Blackrock are interested in the easier-to-value loan portfolio.
Geithner is an empty suit.
Crabsofsteel Mon Mar 23 21:42:19 2009 CDT #
MrM says:
Come to think of it - it is not obvious who wrecked more damage to the world economy: Greenspan or Friedman. Ideological blinders fit Goolsbee so snug!
MrM Mon Mar 23 21:43:29 2009 CDT #
Trainwreck says:
Corruption runs rampant. Let failing institutions fail. Our government is simply trying to game the system.
Trainwreck Mon Mar 23 21:44:37 2009 CDT #
Crabsofsteel says:
No. Let government be smart enough to understand the game, and then let the losers fail. Neither Paulson nor Geithner understood structured finance (in other words, how we got into trouble) but think they had the knowledge to set things right. They didn't, and they don't. There are several ways of fixing this, but like Winston Churchill said, the US will do all of the wrong things before stumbling upon the right thing.
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Crabsofsteel Mon Mar 23 21:53:15 2009 CDT #
Yalt says:
Neither Paulson nor Geithner understood structured finance (in other words, how we got into trouble) but think they had the knowledge to set things right.
I'm not buying that for a minute. They have to pretend not to understand structured finance, so as to be able to pretend that their motivations are what you're supposed to think they are.
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Yalt Mon Mar 23 22:19:31 2009 CDT #
ATM card and $19 in the bank says:
"If the govt gives me $97 to buy a $100 bond, and that bond gets written down to $0, I am still a goner."
Crabsofsteel,
What are the chances that that bond continues to pay for a year? With 3% down and a low interest rate on the 97%, I think the pension fund does okay if the bond pays for a little while (assuming the pension fund immediately defaults on the 97% when the bond defaults on them...). It is the incentive for the 3% crowd to default that bothers me about the Geithner plan; the 97% loans should be recourse.
ATM card and $19 in the bank Mon Mar 23 21:50:34 2009 CDT #
homedad43 says:
Pavel, if you're there.
Several localities in Tidewater Virginia are going to have large community gardens with produce raised going to high turnover food banks. These are entirely NGO and plans are literally being done out of computers in houses...
And on the local front, our local school district had a clothing distribution day on Saturday morning at a local elementary school. People with children's clothing to get rid of could bring it and others could take it for their kids.
I'm in process of going through things now and ours will go to local Rescue Mission.
Goodnight and Godspeed.
homedad43 Mon Mar 23 21:51:13 2009 CDT #
blah says:
i don't know whats worse... the idea of a vast conspiracy to destroy our country's wealth for the sake of a new world order and a new world currency... or an administration that's just plain stupid. meh, what does it matter, the reality is trillions again for the bankster buddies all over the world.
blah Mon Mar 23 21:51:32 2009 CDT #
Cliff\'s Diving School says:
re: new reserve currency
So what would it look like? Mao toasting Mickey Mouse with a bottle of Vodka? Putin in a lowrider? Obama enriching uranium in a yurt? The house of Saud with the gals from Big Brother? I just can't get my head around it.
Cliff\'s Diving School Mon Mar 23 21:52:51 2009 CDT #
albrt says:
I am trying very hard to be optimistic. I am hoping that this is really just the Phase II stress test, and when it turns out the private sector won't buy most of the assets even with a subsidy, Obama and company will finally, regretfully, do what they should have done in the first place and shut these turkeys down.
I am also hoping Obama will build a moon rocket so we can go get some more of that great government cheese we had in the 70s and 80s. That's where it came from, right? I could use some of that cheese.
albrt Mon Mar 23 21:52:57 2009 CDT #
DIPing to China says:
Documentary that examines a massive sell off of the dollar and the world wide ramifications. Worth watching.
http://www.youtube.com/watch?v=AuPgdZeAFjA
DIPing to China Mon Mar 23 21:53:26 2009 CDT #
ScroogeMcDuck says:
@DIPing to China
Great clip! (the day that the dollar falls) It's amazing that the video was made in 2005...and it's eerie watching it when any day now the dollar can crash.
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ScroogeMcDuck Mon Mar 23 22:37:52 2009 CDT #
ScroogeMcDuck says:
oh and peter schiff had a great story in the movie :D
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ScroogeMcDuck Mon Mar 23 22:40:03 2009 CDT #
ATM card and $19 in the bank says:
Forget I said recourse; a default by an empty LLC set up expressly to put down 3% probably turns a recourse loan into a non-recourse loan. What I mean to say is, the 97% needs to be repaid. And that is fatal to the plan.
ATM card and $19 in the bank Mon Mar 23 21:54:24 2009 CDT #
Baca says:
I wonder what effect, if any, the proposed M2M rule changes would have on the auction. That is, if banks value their toxic assets at a higher level using modified M2M, so now that asset is valued at $70 from $30, would this tend to diminish bids?
Aside from that, say Citi sells an asset for $50. Other banks, not in the auction, are holding a similar security. Are those banks now required to mark their asset at this new market price?
Baca Mon Mar 23 21:56:00 2009 CDT #
BR says:
Market Ticker and Zero Hedge have other examples for gaming the system as well.
BR Mon Mar 23 21:57:55 2009 CDT #
Watson says:
anything Citi could have sold, they did. All they have left are the subprime and CRE backed CDOs, or worse. So Citi gets recapitalized but your pension fund gets wiped out
Right.
Goolsbee is trying to divert our attention to the alleged validity of the subsidy to potential buyers who may or may not be interested in taking a flyer on this toxic trash. The real scam is on the other side of the transaction: the owners of the trash. They cant sell it except to the taxpayers, and they cant mark it to market or theyll be insolvent.
Watson Mon Mar 23 22:00:58 2009 CDT #
Crabsofsteel says:
thank you my dear Watson. I am pretty close to what is going on but I don't want to overplay my hand. I just want to get more consulting business.
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Crabsofsteel Mon Mar 23 22:02:52 2009 CDT #
Baca says:
Albt,
One theory out there is that Obama has to try this, and let it fail, before they move on nationalization. Supposedly they are going to try everything before moving on contentious nationalization legislation.
I would like to think that and it would be a great stategy. So far, I just haven't seen anything from the administration that suggests they plan more than one move in advance.
Baca Mon Mar 23 22:01:18 2009 CDT #
Threads Must Die (aka bobn) says:
the US will do all of the wrong things before stumbling upon the right thing.
That assumes we'll last long enough and have enough money/credit when we get there. Neither is certain.
Threads Must Die (aka bobn) Mon Mar 23 22:01:30 2009 CDT #
Crabsofsteel says:
@Threads @11:01
don't be such an alarmist, even though you are probably right. we'll last because our credit in terms of debt to GDP is still good, but with the Geithner plans your kids will be in hock for $30K of US Treasury bonds we may not even be able to sell.
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Crabsofsteel Mon Mar 23 22:10:23 2009 CDT #
Blackhalo says:
"our credit in terms of debt to GDP"
Your numerator value is in for a surprise.
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Blackhalo Mon Mar 23 22:17:02 2009 CDT #
Basel Too says:
maybe Goolsbee should give Krugman the "Nobel Prize of Evil."
what a priceless clip.
Basel Too Mon Mar 23 22:06:36 2009 CDT #
MrM says:
Basel - you surely got it wrong - it is Goolsbee who should get the Nobel for masquerading the truth.
Goolsbee claims "if the private guy makes money, the government makes money. If the private guy loses money, the government loses money." Goolsbee is correct on an individual pool
Goolsbee might be factually correct, but he forgot to mention that because of the taxpayer's/FDIC guarantee, the upside is vastly greater than the downside (see Nemo, Paul Krugman for details).
"It all depends on the defition of making money and losing money" - deja vu all over again
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MrM Mon Mar 23 22:15:00 2009 CDT #
citiprank says:
The FDIC is backing the loans.. right? so if they go bad... the FDIC is on the hook... so in theory the FDIC gets it's money back by increasing it's fees... so instead of putting the risk on the taxpayer.. maybe it's more of a transfer of money from good banks to bad banks since all banks have to pay the fees based on deposit levels?
citiprank Mon Mar 23 22:07:57 2009 CDT #
Bubblisimo Gerkinov says:
Baca says:Today, 7:01:18 AM“Albt,
One theory out there is that Obama has to try this, and let it fail, before they move on nationalization. Supposedly they are going to try everything before moving on contentious nationalization legislation.
Been slumming at dailykos, have you?
Yes ... this seems to be the view of the true believers.
Bubblisimo Gerkinov Mon Mar 23 22:08:35 2009 CDT #
Elrod says:
Actually that was Kevin Drum, not Daily Kos.
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Elrod Mon Mar 23 22:29:19 2009 CDT #
Basel Too says:
My guess is that PIMCO and Blackrock are interested in the easier-to-value loan portfolio.
I was under the impression that Pimco and Blackrock simply wanted to service the portfolios, you know, cut in front of line before even the government and private investors.
Basel Too Mon Mar 23 22:09:55 2009 CDT #
Crabsofsteel says:
@Basel Too
You might be right but it would surprise me as neither PIMCO nor Blackrock, as far as I know, have active mortgage servicing businesses
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Crabsofsteel Mon Mar 23 22:12:17 2009 CDT #
Yalt says:
Thanks for the Tanta link, CR. Nice memories.
I wonder if Goolsbee ever publicly reconsidered this comment, quoted by Tanta:
The latest numbers show that foreclosures have been concentrated not in places where real estate bubbles have supposedly been popping, but rather in places whose economies have stagnated — the hurricane-torn communities on the Gulf of Mexico and the industrial Midwest states like Ohio, Michigan and Indiana, where the domestic auto industry has suffered.
--March 29, 2007
Checked that foreclosure rate in California lately, Austan? Still think the bubble there is only "supposedly" popping?
Yalt Mon Mar 23 22:10:14 2009 CDT #
citiprank says:
"Been slumming at dailykos, have you? "
Actually dailykos is hardly uniform in opinion..... take a look... a lot of people are calling for the heads of geithner and summers over there
citiprank Mon Mar 23 22:10:33 2009 CDT #
EvilHenryPaulson says:
quick note: the government may put up 97% of the funds, but not all as leverage
as suggested by the Treasury, the standard deal will be
Private, equity stake, $1
Treasury, equity stake, $1
FDIC non-recourse loan for leverage, ($1 + $1) x 6 = $12
Total, $14
Now note that the Treasury's equity contribution isn't fixed at 50%, that was just the suggested amount. It's a sliding scale, and presumably from 0 to 50% of the equity stake comes from the Treasury. If the equity stake is at the 50% of the example, then the Treasury is going to get 50% of profits.
Without the Treasury contributing an equity stake, it becomes 14.2% private 85.7% public. Still plenty of room for certain interests to bid up the price of MBS and split the profits between the bidders + auctioneers (eg private money and banks) in some manner
Also, it gets lost when we talk of binary outcomes but the order in which losses are absorbed are:
1) Private Investor
2) Treasury (the $75-100bn from TARP as seed money)
3) FDIC (which technically speaking does not *loan* the money, it *guarantees* the loan)
— do note that whoever is providing the funds for the FDIC guaranteed loan will be collecting healthy fees as usual with recent FDIC insured bond sales. The reason why the FDIC does not provide the actual loan is to do with its official mandate, it's not a lender... only a guarantor
Just a minor quibble, and if I'm wrong what better way to find out than be corrected by someone who has read the official release in depth
EvilHenryPaulson Mon Mar 23 22:11:45 2009 CDT #
REBear says:
Why would Goolsbee want to read any example that would prove him wrong?
REBear Mon Mar 23 22:12:01 2009 CDT #
voluntary debt slave says:
I think it sublimely hilarious that the solution to a problem born of complex, illegitimate mathematics is itself complex, opaque, and fraught with opportunities for the continued enrichment of the designers at the expense of the taxpayer.
The question is, is our leadership complicit in this, or simply out of their league.
voluntary debt slave Mon Mar 23 22:12:18 2009 CDT #
Crabsofsteel says:
the funny thing is that the mathematics are neither complex nor illegitimate. Have you ever taken statistics? Statistics 101 describes a Gaussian distribution, the chances that a matchstick you drop hits a line in the sand. What was illegitimate was that Wall St. parterned with the ratings agencies to basterdize this notion to apply to mortgage behavior.
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Crabsofsteel Mon Mar 23 22:22:03 2009 CDT #
ftm says:
Every builder knows how to victimize mortgage banks by giving home buyers a little "down payment assistance". Now bankers can give the hedgies a little of that assistance and fill their own pockets with taxpayers' cash.
ftm Mon Mar 23 22:16:35 2009 CDT #
Basel Too says:
You might be right but it would surprise me as neither PIMCO nor Blackrock, as far as I know, have active mortgage servicing businesses
Sorry, not actually service the mortgages (e.g. Countrywide) but one paper-pusher level on top of that. BlackRock is currently servicing Maiden Lane, whatever that entails.
Also, wouldn't an investor dump agency in favor of this crap, if the returns are so wonderful, especially with so much leverage available?
Basel Too Mon Mar 23 22:18:43 2009 CDT #
Crabsofsteel says:
@Basel Too @11:18
> Also, wouldn't an investor dump agency in favor of this crap, if the returns are so wonderful, especially with so much leverage available?
On the surface yes, but you have to be able to re-underwrite the mortgage collateral without the benefit of a site visit nor an inspection. Remember, a resi MBS has 4,000 loans. It's too risky, it's too much work, no one is going to do it.
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Crabsofsteel Mon Mar 23 22:41:46 2009 CDT #
NateTG says:
"a problem born of complex, illegitimate mathematics"
I think it would be more appropriatly described as willful ignorance.
NateTG Mon Mar 23 22:20:54 2009 CDT #
MrM says:
Don't you think that the Geithner construct looks similar to the Merrill deal with Lone Star. Didn't Merrill provide loans to Lone Star on very favorable terms to finance the purchase of its toxic assets?
MrM Mon Mar 23 22:21:09 2009 CDT #
Crabsofsteel says:
@MrM at 11:21
Yes.
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Crabsofsteel Mon Mar 23 22:28:25 2009 CDT #
MrM says:
We should call it then the John Thain plan, not the Geithner plan.
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MrM Mon Mar 23 22:32:37 2009 CDT #
mort_fin says:
I once caught Goolsbee making the ludicrous "if 20% of subprime loans result in foreclosure than 80% must be successes" claim.
The Treasury loans on the legacy crap program will definitely have to be scored by OMB and CBO under the Credit Reform Act of 1990, and I would guess that the FDIC loan guarantees will, also. It will be interesting to see the default and severity guesses that the OMB examiners and CBO analysts settle on. At some point, deep in the bowels of the federal budget bureaucracy, published estimates of the subsidy from the taxpayers will be made, and they will be billions of dollars larger than zero.
mort_fin Mon Mar 23 22:22:11 2009 CDT #
dryfly says:
The Treasury loans on the legacy crap program will definitely have to be scored by OMB and CBO under the Credit Reform Act of 1990, and I would guess that the FDIC loan guarantees will, also. It will be interesting to see the default and severity guesses that the OMB examiners and CBO analysts settle on. At some point, deep in the bowels of the federal budget bureaucracy, published estimates of the subsidy from the taxpayers will be made, and they will be billions of dollars larger than zero.
Hopefully they work fast and some hero of the republic 'leaks' the results to the press [or Nemo].
dryfly Mon Mar 23 22:26:58 2009 CDT #
char says:
China should keep its mouth shut about the U.S. Dollar because they have no room to talk given their manipulation of the Yuan.
Also, China is going down the tubes. The U.S. will still be the safest place to put your money because a quasi-open system like that found in the United States is far superior to the closed system found in China. If you don't believe me, travel to China. Do business with a Chinese company. Try and open a company in China.
You will find that Chinese poor is a subsistence lifestyle while U.S. poor is food stamps and basic cable television. Chinese companies will steal your intellectual property and clog up your accounts receivable.
char Mon Mar 23 22:27:17 2009 CDT #
Blackhalo says:
"Also, China is going down the tubes."
Nooo, China is not tube-bound. USA IS. The Chinese will eventually de-peg the Yuan and start let the a consumer economy flourish. The USA is headed for hyper-inflation and some belt tightening.
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Blackhalo Mon Mar 23 22:29:28 2009 CDT #
Crabsofsteel says:
char @11:27
As far as I know, China is not printing money to subsidize their fails a la AIG. I am all in favor of an America first argument, but it's not justified. We have AIG. We have Citi. We are where the toxic crap ownership is domiciled.
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Crabsofsteel Mon Mar 23 22:33:39 2009 CDT #
Yalt says:
The FDIC is backing the loans.. right? so if they go bad... the FDIC is on the hook... so in theory the FDIC gets it's money back by increasing it's fees... so instead of putting the risk on the taxpayer.. maybe it's more of a transfer of money from good banks to bad banks since all banks have to pay the fees based on deposit levels?
In theory, maybe. In practice that's where your argument will likely break down.
The FDIC has been chosen to take the losses because:
(1) they can do so without having to go to Congress for expenditure approval, and
(2) when the time finally comes to hit Congress up for the funds, depositor bailouts will be a lot more popular than banker bailouts. Getting money to bailout a busted FDIC will be a relatively easy sell.
Yalt Mon Mar 23 22:28:09 2009 CDT #
Anonymous says:
It was a pleasure to reread Tanta's dissection of Goolsbee.He reminds me of John Nady who I once described as having most of the ethical sense of a weasel in rut.
Anonymous Mon Mar 23 22:28:19 2009 CDT #
citiprank says:
@Yalt.... I don't disagree with you..... I'm just wondering if they plan to bailout the FDIC or simply have the FDIC increase it's fees on banks...
One is a transfer from taxpayers to bad banks.. the other is a transfer from good banks to bad banks....
citiprank Mon Mar 23 22:30:28 2009 CDT #
Yalt says:
@Yalt.... I don't disagree with you..... I'm just wondering if they plan to bailout the FDIC or simply have the FDIC increase it's fees on banks...
The scale of the losses will be so astronomical that they surely must know they won't be able to recapitalize the FDIC by increasing fees. If they don't know, they'll find out soon enough (there's probably some tool somewhere in Treasury that's actually drinking the 'hold to maturity' koolaid).
My guess is that when the FDIC busts they'll announce an increase in fees, but also say (and correctly, FWIW) that the fees aren't sufficient to recapitalize in time for the expected near- to mid-term losses and they need a massive infusion from Treasury as well. There'll be lots of fingerpointing and shouldershrugging and gallows humor and whocoodanodes, but the bailout will pass with no problems, whatever the size.
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Yalt Mon Mar 23 22:39:03 2009 CDT #
NateTG says:
I'm suspecting that one of the things that Wall Street is liking is that they can sell the bag to the public (again). Blackrock's going to make mutual funds out of this stuff, and CNBC had some guy talking about the same sort of thing.
"We're going to tax you, and your children, and their children to pay for this, but here, you can have some of the crumbs so be happy."
*DONT_KNOW*
NateTG Mon Mar 23 22:31:12 2009 CDT #
mp says:
@dryfly
re your aluminum comment on the previous thread.
Zombie supplier, no? Got to be lots of those.
mp Mon Mar 23 22:31:23 2009 CDT #
Anonymous says:
Am I getting this right?
The Fed is going to use my tax dollars to write down the value of a securities bundle where my mortgage resides, share the cost of a down and loan the balance to the investor who turns around and charges me the full note amount at an obscene profit? And if I default, the investor can walk with no recourse?
Please tell me I have this wrong.
Anonymous Mon Mar 23 22:31:35 2009 CDT #
citiprank says:
"Nooo, China is not tube-bound. USA IS. The Chinese will eventually de-peg the Yuan and start let the a consumer economy flourish. The USA is headed for hyper-inflation and some belt tightening."
Except that china is about to experience a giant demographic crisis where over half there population is over the age of 60....
Things aren't so great over in china
citiprank Mon Mar 23 22:31:47 2009 CDT #
Blackhalo says:
"Except that china is about to experience a giant demographic crisis where over half there population is over the age of 60.... "
"Age Breakdown; 28% under 15, 31% 15 to 29, 20% 30 to 44, 12% 45 to 59, 7% 60 to 74, 2% 75 and over (1989)."
Nope 9% (probably less now, given their health care and death rate) you idiot.
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Blackhalo Mon Mar 23 22:39:07 2009 CDT #
Yalt says:
You will find that Chinese poor is a subsistence lifestyle while U.S. poor is food stamps and basic cable television.
Tell that to the homeless guys who rummage the dumpster behind my building every afternoon.
Poor in this town means (1) having to crap in a garbage bin because all the public toilets have been padlocked and (2) getting chased by the cops for having the audacity to try to bathe in the lake.
Yalt Mon Mar 23 22:32:54 2009 CDT #
1 currency now [yogi] :) says:
OK so let's start a CR fund hedged to game this leveraged BS. X% of profits go to a charity chosen by weighted vote. Come on, EHP, why can't we buy swaps too? Everything transparent and documented to teach these scum a lesson.
1 currency now [yogi] :) Mon Mar 23 22:33:32 2009 CDT #
Basel Too says:
lone star only had to put 5-6% cash for its purchase crap MER MBS; the rest was non-recourse loan financed by MER.
So imagine what Lone Star would have paid for the really toxic stuff.
Basel Too Mon Mar 23 22:37:09 2009 CDT #
MrM says:
lone star only had to put 5-6% cash for its purchase crap MER MBS
In EHP's example @11:11, the private investors puts 7% cash.
Can we all agree that the idea is not original and think about what happened to the firm that tried it first?
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MrM Mon Mar 23 22:41:40 2009 CDT #
Yalt says:
Can we all agree that the idea is not original and think about what happened to the firm that tried it first?
But MER had to put up the nonrecourse loan themselves. This time it's the FDIC putting up the loan, not the bank selling the assets.
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Yalt Mon Mar 23 22:55:57 2009 CDT #
dryfly says:
@dryfly
re your aluminum comment on the previous thread.
Zombie supplier, no? Got to be lots of those.
Yes - there are a lot of them.
On the way up the smart thing to do was hope you had a large inventory... then you could sell at market price from an inventory with a lower average cost [bought previously when prices were lower]... but once it reverses those with the inventory are screwed - their average cost is now well above market price and they sell at a loss or sell nothing at all. That was exactly what happened. A bunch will go broke.
dryfly Mon Mar 23 22:39:49 2009 CDT #
ponzi maniax says:
we are in your banks
on your teevee screens
you'll see us in your nightmares
you'll see us in your dreams
take a little walk to the edge of town
where the viaducts loom like a bird of doom
man, you know you're never comin' back
ponzi maniax Mon Mar 23 22:40:00 2009 CDT #
1 currency now [yogi] :) says:
Dryfly:
China is clever enough to wean themselves from the dollar and US exports very slowly, lest they crash the price of their holdings. In fact, they should be teasing us with promises and little bargains as they perpare for the new order.
1 currency now [yogi] :) Mon Mar 23 22:40:08 2009 CDT #
The Sum of All Banking Evil says:
If I were in charge of China, I would stimulate my economy exactly as Reagan stimulated ours coming out of the 70's recession: arms race, baby. Use all those dollars they have built up over the years to build up their military and stimulate their economy.
How about a Chinese 600-submarine navy?
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The Sum of All Banking Evil Tue Mar 24 10:04:37 2009 CDT #
bearly says:
[It is the incentive for the 3% crowd to default that bothers me about the Geithner plan; the 97% loans should be recourse.]
I would like for some reporter to just come straight out tomorrow and get Obama to answer why the USG is giving next-2-nothing-down non recourse loans to hedge funds. I want to get a straight answer and would like the entire country to see him squirm. He didn't inherit that program. Fucker.
bearly Mon Mar 23 22:49:58 2009 CDT #
dryfly says:
China is clever enough to wean themselves from the dollar and US exports very slowly, lest they crash the price of their holdings. In fact, they should be teasing us with promises and little bargains as they perpare for the new order.
The only new order they care about is how can they keep their masses working [and not rebelling] so who can they sell their output to if not USA. That is it. If they had to dump their USD holdings in the China Sea to guarantee they could continue to keep them working it would be done tonight - seriously.
Listen I have friends on planes right now - heading to china - to see wth they can do to jump start a very slow factory their masters own over there. Orders are off the table. Lay offs already & more coming. It is happening all over China.
So China is going to quit buying USD assets and tell WalMart to 'FU We don't want to sell to you anymore for dollars'? WalMart go along with that? I don't think so.
Western investors think like investors... politburo apparatchiks think like apparatchiks... they see the same 'forces' & 'results' but analyze & value them very differently. Too many on this forum can only think like an 'investor' - they need to try and think like the other side of the desk, the other side of the deal.
dryfly Mon Mar 23 22:50:50 2009 CDT #
Blackhalo says:
"who can they sell their output to if not USA."
One would hope they could sell it to themselves. Granted they may not have quite the taste for their plastic, melamine infused, lead-painted stuff as we do, but there should be a market at the right price.
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Blackhalo Mon Mar 23 22:54:30 2009 CDT #
Basel Too says:
I would like for some reporter to just come straight out tomorrow and get Obama to answer why the USG is giving next-2-nothing-down non recourse loans to hedge funds.
Has Obama done an actual press conference yet? (not rhetorical, i don't know). Lots of tv spots, but very little live stuff...
Basel Too Mon Mar 23 22:53:21 2009 CDT #
citiprank says:
Blackhalo I'm hardly an idiot... but I did misremember my stats badly.... china does have a coming demographic crisis though... too many boys.. too many elderly
http://www.slate.com/id/2137680/
The gender disparity is very disturbing.. as there has to be infanticide going on...
But I do apologize.. my intial numbers were way off.. that's what I get for typing late at night 8-)
citiprank Mon Mar 23 22:53:36 2009 CDT #
Blackhalo says:
My apologies for the idiot remark. It is just that it is just that 50% was such outrageous hyperbole that I could not resist.
You are VERY correct though with regard to the gender issue that will be resolved, I suspect by some impressive immigration and emigration.
Parent Post
Blackhalo Mon Mar 23 22:57:40 2009 CDT #
bearly says:
[Except that china is about to experience a giant demographic crisis where over half there population is over the age of 60...]
There's no medicare in china. People just die, and young. It's not the same kind of problem we have.
bearly Mon Mar 23 22:54:06 2009 CDT #
dryfly says:
I would like for some reporter to just come straight out tomorrow and get Obama to answer why the USG is giving next-2-nothing-down non recourse loans to hedge funds. I want to get a straight answer and would like the entire country to see him squirm. He didn't inherit that program.
That is why an opposition party is so important bearly - you are one of them, you have a phone and know how to use email - contact a GOPer rep - explain it to him in simple terms - let us know what reply you get. Kudos if you do [the only GOPer congress critter I have doesn't reply EVER]... Seriously, not ripping you, encouraging you.
dryfly Mon Mar 23 22:56:08 2009 CDT #
citiprank says:
Wouldn't china have to have a major rise in wages to have any sort of real domestic consumer economy with a middle class? Supposedly things are bad over there right now with 10s of millions of unemployed
citiprank Mon Mar 23 22:56:21 2009 CDT #
Blackhalo says:
"Wouldn't china have to have a major rise in wages to have any sort of real domestic consumer economy with a middle class? Supposedly things are bad over there right now with 10s of millions of unemployed"
OR a currency appreciation.
Parent Post
Blackhalo Mon Mar 23 22:59:25 2009 CDT #
dryfly says:
Wouldn't china have to have a major rise in wages to have any sort of real domestic consumer economy with a middle class? Supposedly things are bad over there right now with 10s of millions of unemployed
Not really - even poor people eat, need better housing, etc. And as their currency appreciated they would be wealthier - able to import more as well as pay more for stuff they make domestically allowing companies to pay more to their workers. A virtuous cycle.
Their policy wonks just don't get it or don't care - I don't know which.
Parent Post
dryfly Mon Mar 23 23:04:50 2009 CDT #
REBear says:
Question to Goolsbee, are we still renegotiating NAFTA?
REBear Mon Mar 23 22:56:40 2009 CDT #
char says:
@Yalt
>Tell that to the homeless guys who rummage the dumpster behind my building every afternoon.
China has more than a hundred million folks in the country side who have limited access to water and eat a very low calorie diet. Your homeless guy can qualify for food stamps and go to the local grocery store and obtain food. Rural Chinese citizens (who are losing their jobs in cities by the tens of millions) do not have that luxury.
char Mon Mar 23 22:56:48 2009 CDT #
Citizen AllenM says:
So,is everyone beginning to enjoy that velvet fist of government I promised lo those many months ago?
Nothing like making an entire system begin to reverse a deflationary course through wrenching, plunging stimulus.
As I predicted, they are massively inflating.
The international problem with our creditors is now coming to the fore.
That problem will take the next several years to mitigate.
Someday this war's gonna end...
Citizen AllenM Mon Mar 23 22:57:04 2009 CDT #
dryfly says:
One would hope they could sell it to themselves.
That is the solution but the [mostly] Asian Merchantilists avoid it like a social disease. It would have saved Japan circa 1990s and would save China now if applied. All they have to do is do it. So far they refuse - instead manipulate currency more and more to try and sustain export sector growth then bitch about eroding dollar assets. Insane.
dryfly Mon Mar 23 23:00:11 2009 CDT #
citiprank says:
"My apologies for the idiot remark. It is just that it is just that 50% was such outrageous hyperbole that I could not resist. "
I hear ya... reading my own post now I have to admit.. it does look pretty damn idiotic
lol
citiprank Mon Mar 23 23:00:21 2009 CDT #
Anonymous says:
There's a lot of contradictory press statements coming out of China now. It's points to factionalization. I read this morning they strongly support the dollar (exporters) and this evening they are looking at a new currency (banks).
There could be a political shake up coming out of China, especially if this goes on into 2010. It is not a democracy and the military has ultimate control.
Anonymous Mon Mar 23 23:01:50 2009 CDT #
Yalt says:
I understand your point, Char, but for what it's worth these particular homeless guys no longer qualify for food stamps, which is why they're rummaging dumpsters for scraps.
I'm not so much questioning what you're saying about China as trying to point out that not everyone in the US has basic cable and decent food.
Yalt Mon Mar 23 23:02:19 2009 CDT #
Basel Too says:
There's a lot of contradictory press statements coming out of China now. It's points to factionalization.
Americans are so efficient, we don't even need to have factionalization to have contradictory statements. Timmay can do it by himself.
Basel Too Mon Mar 23 23:03:53 2009 CDT #
Geoff says:
Foolsbee.
Geoff Mon Mar 23 23:04:36 2009 CDT #
Anonymous says:
Dryfly, China can't make us buy on credit anymore than the U.S. Government can. Many people can resist credit and cut back. When the American consumer cuts back (and they will continue), it doesn't matter how much money China loans the U.S.
Anonymous Mon Mar 23 23:04:42 2009 CDT #
1 currency now [yogi] :) says:
China will sell to people with oil, metal, sugar... Do you really think the masses of unemployed Chinese don't know what the Fed buying Treasuries means?
1 currency now [yogi] :) Mon Mar 23 23:05:01 2009 CDT #
dryfly says:
Do you really think the masses of unemployed Chinese don't know what the Fed buying Treasuries means?
Having met a number of their better educated and worldly wise on liaison over here - ya they don't have a clue what is going on. But then neither did most of their US born 'tour guides' [my mfg buddies]. Ignorance is bliss everywhere.
And yogi - there is no other market for their output right now other than the US & EU and both are sick - all other markets are too 'cheap' - no margin. Sugar refinery workers make enough to buy big screens? No. Same all over. Sure a few OPEC sheiks but there aren't enough of them to float Asia exporters. There is only one place with enough demand besides EU & US - their own economies. So far they don't do that.
Parent Post
dryfly Mon Mar 23 23:22:48 2009 CDT #
citiprank says:
check out the gender ratios in china:
At birth: 1.11 male(s)/female (2008 est.)
Under 15: 1.13 male(s)/female (2008 est.)
15-64 years: 1.06 male(s)/female (2008 est.)
Looking at those it's very obvious widespread infanticide is going on.. those birth stats are totally BS...
compare to the US
# at birth: 1.05 males/female
# under 15 years: 1.05 males/female
# 15−64 years: 1 male/female
citiprank Mon Mar 23 23:05:53 2009 CDT #
Yalt says:
Geithner's factionalized himself...it can happen when you have too many masters.
Yalt Mon Mar 23 23:06:10 2009 CDT #
Michael says:
I think the American tax payer is going to have the last laugh in the end because there ain't no way in hell the tax payer is ever going to be able to pay back the debt Washington D.C. politicians are piling on us.
BO is going to go down in history as the biggest Buffoon of a president we ever had.
Maybe Timmy boy should come up with a plan to to buy up tax payer debt, that will work as well as anything else he can dream up.
Michael Mon Mar 23 23:06:20 2009 CDT #
Blackhalo says:
"BO is going to go down in history as the biggest Buffoon of a president we ever had."
Clearly the buffoonery of this administration approaches record levels, but not WMD levels.
Parent Post
Blackhalo Mon Mar 23 23:29:04 2009 CDT #
Baca says:
Basel Too says:Today, 9:53:21 PM
Has Obama done an actual press conference yet? (not rhetorical, i don't know). Lots of tv spots, but very little live stuff...
__________________________
The evening before Geithner's announcement of a plan about a plan last month. Obama built up expectations, but Geithner couldn't deliver.
Baca Mon Mar 23 23:07:00 2009 CDT #
CRbot says:
New Thread: Krugman Discusses Geithner's Toxic Plan on News Hour
http://www.calculatedriskblog.com/2009/03/krugman-discusses-geithners-toxic-plan.html ( 0 comments ...You could be FIRST! )
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Benny... Benny... give me your answer... do.
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I'm sorry Ben, I can't let you do that...
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--Your systemic-failure-crashing bot
CRbot: Call me HAL.
CRbot Mon Mar 23 23:09:25 2009 CDT #
lawn grass says:
Making gold from straw.
lawn grass Mon Mar 23 23:10:02 2009 CDT #
cd says:
Yalt,
the line this morning for a food bank in san francisco-mission area was largest I've seen yet...all races, just too damn long.....food stamps dont get to the homeless....mostly vets....which is a disgrace in america
cd Mon Mar 23 23:11:07 2009 CDT #
dryfly says:
Dryfly, China can't make us buy on credit anymore than the U.S. Government can. Many people can resist credit and cut back. When the American consumer cuts back (and they will continue), it doesn't matter how much money China loans the U.S.
Chinese don't care how much we cut back - it won't be that much overall. Hell we are at what now? 2006 levels GDP? We aren't talking living a 1950s lifestyle anytime too soon.
Plus they only care that they get THEIR share of what export market to the US there is... screw Vietnam, Korea, Japan. That is what the peg and manipulation was all about - was always all about - it wasn't about the absolute level of USD:RMB it was about making sure the USD:RMB was at a more favorable ratio compared to USD:JPY... same for Vietnam. Korea, Taiwan... etc.
They will fight to maintain that competitive edge up until they no longer care if they export to the US. When that happens THEN we'll see a currency crisis. That day might not be as far off as it looks to me now but it isn't here yet.
dryfly Mon Mar 23 23:13:21 2009 CDT #
Anonymous says:
That was a great link to Tanta's old post. I liked how she used the term "credit crunch" 4 months before we hit the mother of all credit crunches.
Anonymous Mon Mar 23 23:17:51 2009 CDT #
char says:
@Crabsofsteel 10:33:39 PM
>@char @11:27 As far as I know, China is not printing money to subsidize their fails a la AIG. I am all in favor of an America first argument, but it's not justified. We have AIG. We have Citi. We are where the toxic crap ownership is domiciled.
Clearly, the U.S. is printing money to inflate ourselves out of this mess and devalue our currency quickly and severely. A weak dollar is all part of the plan which will enable us to pay off our debt more cheaply. The same number of less valuable dollars will satisfy our debt to China. That benefits the U.S. to China's detriment. China can't do anything about it economically, politically or militarily because China is and has always been a paper tiger.
Don't fight the Fed.
char Mon Mar 23 23:21:04 2009 CDT #
Anonymous says:
Dryfly, thanks for the clarification regarding China's competitiveness with their neighbors. I have read that for outsourced manufacturing, China has already lost big share to Vietnam.
Anonymous Mon Mar 23 23:21:21 2009 CDT #
bearly says:
In a Deal with the devil, you get burned
[Banks, like real estate developers, sold off most of the riskiest debt, said Dan Fasulo, a London-based managing director at Real Capital Analytics.
“They keep the good deals for themselves, and they do the riskier, shadier stuff with a partner,” Fasulo said. “What are you going to do with the bad stuff? You’re going to try to syndicate it privately.”]
http://www.bloomberg.com/apps/news?pid=20601109&sid=aR72TKlxCQ7A&refer=exclusive
bearly Mon Mar 23 23:31:55 2009 CDT #
otishertz says:
props to krugman for crediting our man nemo!
otishertz Mon Mar 23 23:41:26 2009 CDT #
Allen C says:
What is to stop toxic waste holder from using a clever process to effectively insure the non-government equity?
Allen C Tue Mar 24 01:22:36 2009 CDT #
Allen C says:
"They keep the good deals for themselves"
Read that as well. Makes you wonder who is holding the bad stuff.
Allen C Tue Mar 24 01:27:27 2009 CDT #
REBear says:
Four more years of moving wealth from middle class to the super rich??
CR has a new video of the day. It's "James Galbraith on the Geithner plan".
REBear Tue Mar 24 06:14:51 2009 CDT #
Con Republicans Blow says:
Michael whimpers: "BO is going to go down in history as the biggest Buffoon of a president we ever had."
Not everyone is as stupid as you are, seditious Conjob.
The biggest buffoons in history are exampled by what you see in the mirror, fool.
Con Republicans Blow Tue Mar 24 06:23:25 2009 CDT #
Ambah Sabine says:
“You can always count on Americans to do the right thing - after they've tried everything else.”
Winston Churchill
Ambah Sabine Tue Mar 24 06:24:01 2009 CDT #
Crabsofsteel says:
@Ambah 7:24
I said this already, although it bears repetition.
Parent Post
Crabsofsteel Tue Mar 24 06:36:20 2009 CDT #
END