How The Irish Saved Civilization, — Again !!! Options Rating

[Milton Roe]

Do you see anything that looks like a housing bubble? Hmmm?

Absolutely. You have successfully demonstrated that the housing market was a bubble, but not that it was the bubble. In fact, there are bubbles everywhere:

That one is not the bubble, either. The bubble, or what history will call the Greenspan bubble, is an order of magnitude larger. Housing, soybeans, and all the other stuff are just part of the froth.

When residential investment goes from 5% of your GDP to 12% in just 8 years, as happened in Ireland, that's not "froth." You won't find anything else remotely like it.

Soybeans. How much of the US GDP went into soybeans? Did our investment increase that much in any other sector you can think of, from 1998 to 2006? I'll give you the answer: no. So single thing sapped as much investment money, by turning it into capital and then cash, as the housing market. Nothing else was that big.

You can try to deflect attention away from the housing bubble all you like, and it's not going to work. There was a housing bubble in the first 6 years of this century. It ate $7 trillion, which we spent. Now our houses are worth half as much as they were in 2006. That didn't happen with soybeans. It may be the soybeans are not worth nearly what they once were, but they're not $13 trillion worth of our economy.

[Herschelkrustofsky]

When residential investment goes from 5% of your GDP to 12% in just 8 years, as happened in Ireland, that's not "froth." You won't find anything else remotely like it.

Unless you count US derivatives holdings, which at $223.4 Trillion are actually worth (on paper) about 1500% of our GDP. Now, there's a bubble.

[Milton Roe]

When residential investment goes from 5% of your GDP to 12% in just 8 years, as happened in Ireland, that's not "froth." You won't find anything else remotely like it.

Unless you count US derivatives holdings, which at $223.4 Trillion are actually worth (on paper) about 1500% of our GDP. Now, there's a bubble.

But why would you want to "count" these? This monetary value is like counting the value of term life or (even better) accidental death insurance payout benefit, before the insured person dies. You can't DO that, since most such policies will lapse without ever being paid, and that's the end of them. They aren't debts. The money value of them (if any) is only a tiny fraction of their "face-value."

Almost all the "derivatives" above are "swaps". They function like insurance policies on money deals, that will never be paid. In most cases, it's hard to say even which side will be paid in the future from them-- all we know is that both sides are at risk, and most of this money will never change hands. Just like the payout money for accidental death.

[radek]

When residential investment goes from 5% of your GDP to 12% in just 8 years, as happened in Ireland, that's not "froth." You won't find anything else remotely like it.

Unless you count US derivatives holdings, which at $223.4 Trillion are actually worth (on paper) about 1500% of our GDP. Now, there's a bubble.

But why would you want to "count" these? This monetary value is like counting the value of term life or (even better) accidental death insurance payout benefit, before the insured person dies. You can't DO that, since most such policies will lapse without ever being paid, and that's the end of them. They aren't debts. The money value of them (if any) is only a tiny fraction of their "face-value."

Almost all the "derivatives" above are "swaps". They function like insurance policies on money deals, that will never be paid. In most cases, it's hard to say even which side will be paid in the future from them-- all we know is that both sides are at risk, and most of this money will never change hands. Just like the payout money for accidental death.

As an economist, I hereby give my endorsement to roughly Milton' description of what happened. This isn't to say that the financial sector, derivatives and all wasn't itself also screwed up and a cause much of the trouble. It's not a single-explanation answer.

[Jon Awbrey]

As an economist …

You'd get slightly more credibility by calling yourself a pop-up toaster …

Jon

[Herschelkrustofsky]

But why would you want to "count" these? This monetary value is like counting the value of term life or (even better) accidental death insurance payout benefit, before the insured person dies. You can't DO that, since most such policies will lapse without ever being paid, and that's the end of them. They aren't debts. The money value of them (if any) is only a tiny fraction of their "face-value."

Almost all the "derivatives" above are "swaps". They function like insurance policies on money deals, that will never be paid. In most cases, it's hard to say even which side will be paid in the future from them-- all we know is that both sides are at risk, and most of this money will never change hands. Just like the payout money for accidental death.

Gosh, that all sounds pretty sensible. But if that $223.4 Trillion in derivatives poses no problem, why is the bailout money going to derivatives traders instead of those bad homeowners that supposedly caused the problem? In fact, the recent disclosures by the fed (compelled by the congress) reveal that the fed bailed out over 100 hedge funds and other off-shore funds. The bailout figures disclosed by the fed run around $16 Trillion. I was unable to find statistics on the present dollar amount of delinquent mortgages, but I suspect one could buy all of them for much less than that.

[Jon Awbrey]

Gosh, that all sounds pretty sensible. But if that $223.4 Trillion in derivatives poses no problem, why is the bailout money going to derivatives traders instead of those bad homeowners that supposedly caused the problem? In fact, the recent disclosures by the fed (compelled by the congress) reveal that the fed bailed out over 100 hedge funds and other off-shore funds. The bailout figures disclosed by the fed run around $16 Trillion. I was unable to find statistics on the present dollar amount of delinquent mortgages, but I suspect one could buy all of them for much less than that.

That's like asking why ya gotta pay yer gambling debts first.

Kneecaps, Crowbar.
Crowbar, Kneecaps.

Jon

[Milton Roe]

But why would you want to "count" these? This monetary value is like counting the value of term life or (even better) accidental death insurance payout benefit, before the insured person dies. You can't DO that, since most such policies will lapse without ever being paid, and that's the end of them. They aren't debts. The money value of them (if any) is only a tiny fraction of their "face-value."

Almost all the "derivatives" above are "swaps". They function like insurance policies on money deals, that will never be paid. In most cases, it's hard to say even which side will be paid in the future from them-- all we know is that both sides are at risk, and most of this money will never change hands. Just like the payout money for accidental death.

Gosh, that all sounds pretty sensible. But if that $223.4 Trillion in derivatives poses no problem, why is the bailout money going to derivatives traders instead of those bad homeowners that supposedly caused the problem? In fact, the recent disclosures by the fed (compelled by the congress) reveal that the fed bailed out over 100 hedge funds and other off-shore funds. The bailout figures disclosed by the fed run around $16 Trillion. I was unable to find statistics on the present dollar amount of delinquent mortgages, but I suspect one could buy all of them for much less than that.

You could, but the numbers are meaningless, because the $14 trillion is in LOANS, mostly short term (a few months). Most has been paid back already. Remember the initial $700 billion TARP treasury program will eventually cost $30 to $60 billion, depending on who you believe. The cost of the much larger Fed (Federal Reserve) loan bailout of everybody will be a tiny fraction of that $14 trillion. I don't know what it will be. I don't think you do, and I don't think even the Fed does. The Fed, remember, does not get your tax dollars, but supports itself with interest (anything it makes over a certain amount, it actually pays to the government to DECREASE your taxes). If the Fed really loses out on all the loans for the past two years, you'll know it when the currency starts inflating. According to the consumer price index, that hasn't happened, at least so far.

http://www.pressdemocrat.com/article/20101...21072?p=1&tc=pg

Housing: note that $1.25 TRILLION of the Fed bailout went to buy home mortgage securities from Fannie Mae and Freddie Mac, all of which kept homes from being foreclosed-upon (alas, none of that helped MY home loan). Is that the sort of thing you had in mind? It didn't pay off the mortgages, but it kept up their sagging repayment status. Perhaps all those people should go out on the street. I dunno.

The Fed lent money to everybody who looked like a good credit risk. $16 billion to GE and $2 billion to Harley-Davidson, both companies which were in danger of not making payroll and closing their doors. Yeah, I know LaRouche doesn't care about a motorcycle company. And he may or may not care about MacDonalds and Caterpillar. But the people who work there, do.

Yes, I see whining about 100 hedge funds. And the California Teacher's Retirement Fund (some California teachers remind me of infrastructure, and not in a good way). Your hedge fund for your filthy rich yachting pleasure is my retirement fund that needs to be there to keep me from having to live on cat food when I'm old. So which kind are we talking about? Is this just hedge funds owned by filthy rich bastards that I wish would die, or is any of it where my money is? And how much of the total ARE these 100 "hedge funds"?

You should understand that the $14 trillion in loans is not the issue when you see people complaining about the interest rates on the loans. They are jealous that they didn't get low interest money. Perhaps some banks even took zero-interest money and bought T-bills . We don't know how much of that went on. We do know that Citigroup, Merrlll Lynch, and Morgan Stanley got $6 trillion in quicky-loans between just the three of them (what-- you think they KEPT it??), whereas your average mainstreet business got nothing, and (if you weren't a Fannie or Freddie mortgage), your mortgage didn't get affected either.

Look I'm not claiming the Fed is perfect. But even I know it's easier to loan large amounts of money to hundreds of large banks and large companies, and a lot harder to loan it to hundreds of thousands of smaller businesses, or directly to millions of mortgage payers. I suspect that the money that went to Fannie and Freddie is some of the worst loans the Fed made, and will never see again, and that DID go to housing. Do you want the Fed to make loans to companies and banks that will pay it back, or not?

[Herschelkrustofsky]

The bailout figures disclosed by the fed run around $16 Trillion. I was unable to find statistics on the present dollar amount of delinquent mortgages, but I suspect one could buy all of them for much less than that.

You could, but the numbers are meaningless, because the $14 trillion is in LOANS, mostly short term (a few months). Most has been paid back already. Remember the initial $700 billion TARP treasury program will eventually cost $30 to $60 billion, depending on who you believe.

The whole thing is another Ponzi scheme, because the TARP loans were repaid with zero-percent loans from the Fed. Which loans will also be rolled over ad infinitum.

If the Fed really loses out on all the loans for the past two years, you'll know it when the currency starts inflating.

No shit, Sherlock.

[radek]

As an economist …

You'd get slightly more credibility by calling yourself a pop-up toaster …

Jon

Yeah I know, like the old joke about a kid telling everyone that his dad "plays piano in a whorehouse" because he could never tell'em his dad is an economist. For what it's worth, quite a number of economists (though generally not the kind you see on TV) were warning about the fact that shit was messed up before it happened. At a point or two, Bernanke was actually one of them.

[Jon Awbrey]

As an economist …

You'd get slightly more credibility by calling yourself a pop-up toaster …

Jon

Yeah I know, like the old joke about a kid telling everyone that his dad “plays piano in a whorehouse” because he could never tell 'em his dad is an economist.

The cream of the jest being, of course, that they are the same thing.

Jon

[Herschelkrustofsky]

And tonight there is a news flash.

[Jon Awbrey]

❣❣❣ Happy Bloomsday ❣❣❣

[gomi]

"Your battles inspired me - not the obvious material battles but those that were fought and won behind your forehead." - Joyce

[EricBarbour]

I can't possibly outdo that, so.....