.............GM Said to Plan All-Equity Offer for Bondholders ...........

.http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8kWBTRWRzxo

Capping the top looks just as bad as digging the holes at the bottom.

Let me help Yellen here;
get advice outside the FED room and FED banks. Get input from Shiller, Roubini, et all. Look at historical prices for various assets. Finally, why not just admit you have no idea what you all are doing, abolish the FED and let the market work it out alone (from Mish). I think you will see limited bubbles.

I guess they don't cover the whole barn door, closure, horse and timing thing when you get an advanced degree in economics.

bearly writes
She forgot to include Beanie Babies in her bubble bursting case study candidate list.

How about 50 dollar an ounce silver? Havent seen a mouth that big since my last large mouth *ASS had a hook in it.

-tin snow

I enjoy the debate over banking regulations. Just like the ones I enjoyed in 1933.

Regulation is such a red herring. You leave tremendous power in the hands of private forces that are opposed to the regulation and do everything in they can to undermine them. Who will stand in their way? Regulatory capture must be accounted for. The only way to proceed is to decentralize power. It is also the hardest way, but damn the doomers it is not impossible.

I was speaking about the power of private power specifically, but any power given to regulators should be limited and subject to recall.

Again half the story ...

The housing bubble was small, what happened is that it burst the underlying

$50 trillion bubble that has been building since the time of Reagan.

~~~~~

Summer 2009: Crash of International Currency System CONFIRMED

Thus, in this GEAB N°34, our researchers develop more their anticipations on the possible forms that the American suspension of payment will take by the end of the summer 2009, and from April 2009 (principal month of collection of the tax incomes in the United States) will be impossible to mask (10). The suspension of payment by the United States in the summer 2009 is indeed a topicality increasingly more extreme from now on with the public deficit completely out of control on the back of explosion of the expenditure (+ 41%) and of collapse of the revenues from taxes (- 28%), like LEAP/E2020 anticipated more than one year ago: for only March 2009, the federal deficit was assembled to nearly 200 Billion USD (much above the most pessimistic forecast), that is to say not under half of the deficit recorded for the whole of the year 2008 (11). And the same phenomenon is repeated on all the levels of the public structure of the country: federal state, federate states (12), counties, cities (13) … everywhere the revenues from taxes disappear involving in an accelerated way the worldwide in an overdrawn spiral that nobody (Washington in first chief) controls any more.

OMG,

I have no idea what hard money is. Oh yeah, levereaged end of civilization shorts, issued by ProShares.

Save yourselves.

If the fed won't allow another bubble, how will Obama get re-elected?

"Bubbles are not easy to detect because estimates of the underlying fundamentals are imprecise.."

But NOW we can have faith in your forcasts?!

contrary indicator: The IMF says things are going to get worse for longer than thought. I might just go super long tonight on that one!

This month's New Left Review, Arrighi - "when competition intensifies, investment in the material economy becomes increasingly risky, and therefore the liquidity preference of accumulators is accentuated, which, inturn creates the supply conditions of the financial expansion." Realities of the 50s-70s are irrelevant now. Heraclitus and the river.

Ac,

I'll see your LBJ and raise you FDR. I can go all the way back to Washington if I have to.

Well, I say LBJ because that's when we started spending more than we make as a country. At least for a while after WWII we actually paid for the stuff we bought.

AZN, I disagree...we DO need the regulations that brought us 50 years of comfort and growth put back in place.

Well the counterargument to that is the pre-WWI era which saw our greatest growth in per capita income was relatively unregulated and pre-dated the federal reserve and the more centralized regulation mechanisms we now have.

Where or not there's a cause and effect relationship, you can't say that you can't have prosperity without a lot of regulation.

How convenient of the Fed to blame this all on the regulators. Who is regulating the regulators?!?! In a hierarchical environment, if the upper managers see that the lower managers are screwing around & not doing their jobs, the lower managers are supposed to get "fix this or get packing" messages, lest the whole thing blow up and the upper managers get in trouble. Apparently, the new paradigm is to blame it all on the lower managers, and the upper managers don't have to be accountable to the subordinates.

Sadly, this sounds like my employer's situation.

How convenient of the Fed to blame this all on the regulators. Who is regulating the regulators?!?!

I think the real question is do financial regulators have sufficient incentives to regulate properly? Here's my idea about the problems with financial regulation I posted as a response to a comment elsewhere:

------------------------------------

"The banking system should be regulated to the same extent as the nuclear industry, since it's become rather obvious that interconnected, global banking system = economic neutron bomb."

There's a big problem with this kind of thinking:

With the nuclear industry there's not a lot of incentive as a regulator to do your job poorly. If you screw up you have a nuclear disaster that's likely to affect you and everyone you know.

Finance is very different:

If you screw up as a regulator you and all your Wall Street buddies are likely to get very rich. The negative effects will tend to be concentrated on Main Street but for you and your banking buddies it's party time.

How many people got Ferrari's in the Hamptons from Chernobyl?

How many from this disaster?

It's just not appropriate to compare regulation in these two contexts.

One is vastly more prone to corruption. In fact a person more cynical than I might go as far as suspecting corruption to be the status quo in financial regulation - there's just too much of a payoff for it.

Meanwhile, the K-wave is studiuosly ignored.
The denial is amazing.

Now we can focus on discussing "asset bubbles" in isolation with no worry about the fabric that makes them not only possible, but inevitable.

Can Optimism Alone Spur Recovery?

To view our impartial assessment, please visit:

www.TheValueatRisk.blogspot.com

snick,

On average they were far more numerate than the 'advanced' models we turn out now...I will never forget asking a young waitress once for the time (standard clock on edge view to me)...her reply, "Oh, I'm a digital girl."

Black Star Ranch (member) wrote on Thu, 04/16/2009 - 6:36pm.
.....hmmmmm......I guess even a non - paranoid person could be alarmed when a caravan of unknown people show up at Black Star Ranch in Louisiana looking for me, huh? Maybe I should use the "idiot" term less often when describing certain A-types, huh?

That's a minor problem. You should be more concerned that the DHS has now decided you are potentially a domestic terrorist if you hold certain political/social views. Quoting from the article, "In the report, right-wing extremism was defined as hate-motivated groups and movements, such as hatred of certain religions, racial or ethnic groups. "It may include groups and individuals that are dedicated to a single issue, such as opposition to abortion or immigration," the report said."

Alas, don't fret, they are equal opportunity at the DHS: "The department's definition of left-wing extremism in the March 26 report includes a reference to violence, stating these groups that embrace anticapitalist, communist or socialist beliefs seek "to bring about change through violent revolution rather than through established political processes.""

Soon, we will all be enemies of the state...

I read that speech and I feel I'm seeing some bureaucrat trying to cover her butt.

Yellen: "Fed monetary policy may also have contributed to the U.S. credit boom and the associated house price bubble by maintaining a highly accommodative stance from 2002 to 2004."

It seems to me, Yellen kind of misses the forest for the trees here. The credit boom began thirty years ago, a look at the data in the Flow of Funds makes it pretty obvious. The growth in debt to GDP, whether household or total U.S. debt, began in the late 1970s. The growth of the last few years may have been accelerated, but it is one long trend.

Yellen: "Should central banks attempt to deflate asset price bubbles before they get big enough to cause big problems? Until recently, most central bankers would have said no."

That's simply not true. It may be true for most American central bankers, but both the BoE and ECB were saying asset prices needed to be taken into account back in 2005. They may have failed at it, but the idea that asset bubbles should be ignored on the way up, but placated on the way down was an American (Greenspan) invention.

Every day I'm losing more faith in the system to correct itself.

Yes. The implied thrust of the article is that all is contained now
Right.

Bubbles and crashes are manias. Once started they are nearly impossible to stop. You almost have to just let the fire burn out. There is never the political will to apply the effective cure until long after it would do any good.

But our regulators and congress are worse than that. The actually make things worse by over-reacting, with a lag, and by using tools that need long lead times to have any meaningful impact. So the cures they apply hit the economy with such a long lag that most of the activity is counterproductive - adding to the next cycle extreme. Like a drunk oversteering to stay on the road - turn hard left, no, hard right...

But, I love them for it because they are so predictable in their incompetence. I have made my fortune betting on the continuation of this dynamic.

A prudent regulation, and one unlikely to cause much damage to the real economy through a wrong guess, would be a limit on leverage. If regulated financial institutions can't originate, or buy loans or securities originated, with less than (say) 20% equity, the borrower will have some skin in the game and be much less likely to buy on pure speculation of an upside. Same thing for financial institutions: if you're operating at 97% leverage, as most of Wall Street was, then the upside is almost unlimited for the executives and their bonuses, but a 5% drop in asset values wipes the shareholders out. Part of the leverage inquiry should include a matching of asset and liability duration: the residential borrower who somehow scrapes together a large down payment but lacks the salary and savings to cover debt service shouldn't get the loan; and the investment bank with 24% of the commercial paper funding its operations consisting of overnight repos (like Lehman at the end) should have a very large amount of cash sitting there in case the plug is pulled.

Use REGULATORY policy to attack asset bubbles. Monetary policy is too crude.

I think the Fed needs to be nationalized and all upper managment fired for incompetence.

dryfly says:

"if you want small gov't... then you better make damned sure you have aggressive anti-trust else the trusts 'become' the gov't. Big gov't and big business have been in an organizational 'arms race' ever since the WWII and the Manhattan Project."

You have encapsulated an entire future political movement in two sentences.

Nice work, dry.

re: US torture.
You won't see this on US cable TV: Al-Jazeera's interview with Richard Armitage
http://tinyurl.com/cjh88l

I suppose we have to cheer signs of progress in our leaders. But it does seem too little, too late, and a little CYA self-serving. Someone in Yellen's shoes should be helping us understand what's going on. Instead she seems to be barely able to comprehend what's obvious to us, even though we have much to figure out yet. I hope she accelerates her learning.

Either that, or she (and others in her position) are truly clever and devious. I actually think it's about 40% dumbness and 60% deviousness. There is a reason most professional financiers and regulators either supported the bubble or didn't stand in its way. It wasn't because they were all evil. They knew that acting forcefully on any doubts was probably the end of their careers; suspending doubt was certain to produce continued personal career success. As others have pointed out before, "It is difficult to get a man to understand something when his salary depends upon his not understanding it."

first (second after the one from some other member which suggested bad banks have to be put to rest) sensible comment from the Fed that I have seen in long time!!

"Should central banks attempt to deflate asset price bubbles before they get big enough to cause big problems?"

Anyone with common sense will say yes to this! If you answer with a "no" then your answer should be a "no" to any intervention after the event.

Else you allow bandits to game the system and walk away with the loot!!

However, other observers argue that monetary authorities must consider responding directly to an asset price bubble when one is detected. This is because-as we are witnessing-bursting bubbles can seriously harm economic performance, and monetary policy is hard-pressed to respond effectively after the fact. ...

replace "is hard-pressed to respond effectively after the fact" with "by generally screwing prudent asset buyers, savers and tax payers with the beneficiaries being the very screwballs who created the bubble"

"Second, even if bubbles do occur, it's an open question whether policymakers can identify them in time to act effectively. Bubbles are not easy to detect because estimates of the underlying fundamentals are imprecise. ..."

Yes, may be difficult to identify!! Then you either take a chance and regulate OR leave the markets alone in both directions (you can't say I will not regulate when it goes up and I will come in on the leg down and screw the guys who exhibited common sense) let the cleansing happen and those who have to take a haircut TAKE IT!!

Basically Fed (and others) feel good when the party is on even if it is suspected to be on drugs (bubble) and NOBODY has the capacity to say "emperor has no clothes" and even if one does, what is the guarantee that it is taken seriously.

Therefore IF YOU DO NOT do not do anything when the bubble is built up THEN DO NOT DO ANYTHING ON THE LEG DOWN and screw people who were not party to it.

this is ridiculous. Did anyone miss the fact that asset prices were prices. There is no reason that any central bank should fight rise in consumer good prices (what has mistakenly be labeled inflation) and encourage rises in capital good prices.
Why the hell should a central bank fear wage rises and promote profitability ?
If you systematically hike interest rates when wage and consumer good price rise and lower them to promote higher profit and higher stock prices ... you end up with this mess. THis is just central bankers having an asymetric policy favoring certain price increases and fighting other price increases.

I have just seen the full text of Yellen´s "A Minsky Meltdown: Lessons for Central Bankers"...She gives a ringing endorsement for the very McCulley piece I was referring to in my previous post....Well, I guess that is an even better reason to read McCulley...

Alas, another participant of the 18th Annual Hyman P. Minsky Conference, Joe Stiglitz, is not pulling any punches in his critique of the Obama´s bailout of Wall Street. According to Bloomberg:

' The Public-Private Investment Program, PPIP, designed to buy bad assets from banks, "is a really bad program," Stiglitz said. It won't accomplish the administration's goal of establishing a price for illiquid assets clogging banks' balance sheets, and instead will enrich investors while sticking taxpayers with huge losses.

"You're really bailing out the shareholders and the bondholders," he said. "Some of the people likely to be involved in this, like Pimco, are big bondholders," he said, referring to Pacific Investment Management Co., a bond investment firm in Newport Beach, California. '

Of course, it was McCulley who told his audience in the very article Yellen (and I) praised this:

'Let me tell you that, while the Levy Institute is a think tank, Minsky's work is not just think-tank
work. It's also not just policy-wonkish work. It has real, practical implications in the world that I live
in. At PIMCO, we manage three-quarters of a trillion-with a t-debt units. They're sometimes called
bonds, but here I think I should call them debt units. I introduced our CIO, Bill Gross, to Minsky's
thinking about six years ago, when we had the corporate scandals associated with WorldCom and Enron
and so forth. We were in an investment committee meeting, and I said, "Bill, it's very simple: it's a
Minsky moment"-a phrase I'd coined back in 1998. And he said, "What do you mean? Who is this
Minsky guy?" I said, "Bill, you have got to get up to speed here." So he said immediately, "Give me his
work." I had my copy of Stabilizing an Unstable Economy (1986) right on my shelf at the office, so I lent
it to Bill. He read it cover to cover. By 2006, he had become a disciple, if you will.
I say "disciple" because the whole framework of Minsky has a very simple core thesis. We all know
it: stability is destabilizing, because market participants, or economic agents, being human beings,
extrapolate stability into infinity. And, if you extrapolate stability into infinity, then you inherently take
on ever more risky debt structures. That is a Nobel Prize concept, that the world is not inherently meanreverting
on the basis of value. The world is inherently momentum-driven. Human beings are inherently
reflexive. Intellectually, we know to buy low and sell high, but emotionally, we can't bring ourselves to
do that; we tend to do the exact opposite, which imparts an intense procyclical character to capitalism.
Perhaps even worse, it imparts procyclicality to regulatory structures. Not only are the kids and the frat
party procyclical, but the guidance counselor is too. That's a reality of financial markets.'

So, after "Rational Expectations", the next game in the town is to try to outguess your increasingly Minskyan opponents?

Convince Barney and his buddies that everyone is not entitled to a home so they do not push Fannie and Freddie to buy mortgages from banks that have been pushed to come up with nutty ways to allow some body to get in a house for no money down with low interest..

It amazes me that they are still idiots today. I work for an ag lender, mainly large acreage. Our borrowers will build a home on their 100 acre ranchette. We require 20% down on all our loans. So many of our borrowers will survey out a half and acre or so on the end of a half mile long driveway and use that half acre with the home as security for a conforming loan. I looked at one the other day to determine if we would allow the small parcel to be cut out of our security, in order to determine that it did not damage the value of what we had left. I looked at the small piece surveyed out. All of this kind of happening at same time and the applicant was showing me where the house will sit. The water well is on our security. I told him so. I asked where septic would be and it will also be on our remaining security. I told him it didn't matter to me and in fact the water well would help the value of our remaining acreage, but his house would be essentially worthless if any one on the residential side was smart enough to figure out there was no water source available and no septic on the property secured with the house. I told him not to worry that it was doubtful anyone would figure that out, and as it turned out they did not. When they do this half the time the drive way is not on the easement or the well or septic is not on the sucured property.