Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

141 responses to “Global Economic December Thread”

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  1. David Losh

    RE: Kary L. Krismer @ 93

    You are once again right. If California had forced mom, dad, and the kids to pay 10%, 20% more then the wholesale markets would have flowed more freely. Profits would have been made and the whole thing would have blown over.

    You are right. The end result would be the same, we would all be paying more while the profits were stretched out over a longer period. There never would have been a need for holding electricity hostage in order to make a wind fall profit.

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  2. David Losh

    RE: Kary L. Krismer @ 100

    That makes no sense.

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  3. Kary L. Krismer

    RE: David Losh @ 101 – You’re still not getting it (although I should have been guestimating prices at the MW hour, not KW hour.)

    When you have a shortage of 5% of needed, the prices don’t rise only 5%. Prices might double, triple or much worse. In the case of California electricity it was probably something like 20x, because the utilities were doing their best to keep the power on. The demand curve on the wholesale market was practically perfectly inelastic, while in the retail market it was perfectly elastic.

    At one point the Governor of California begged a company to turn on a plant which could only be run 2 days a year due to pollution standards (that kept a lot of plants from running back then, but this one was the worst in the state). They refused and refused, but finally gave in, charging something like $2000 a MW hour.

    Edit: Here’s a link to that story: http://www.recordnet.com/apps/pbcs.dll/article?AID=/20010525/A_NEWS/305259963

    It also reminds me of another thing. Some localities were bringing in their own generators to avoid blackouts. The governor seized them all for the state, basically ending the incentive for the localities to do anything to avoid blackouts. More stupidity from a very stupid Governor’s office.

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  4. Kary L. Krismer

    RE: Kary L. Krismer @ 3 – These pollution limitations are probably the basis for pfft claiming there was a lot of extra capacity in the state.

    Keep in mind that in addition to the pollution limitations the state had not built a single plant for more than 10 years at that point in time. The chance of them having extra capacity was very slight given the state’s population increases and the increased number of electrical gadgets. Computers were rather inefficient back then, as were most monitors.

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  5. David Losh

    RE: Kary L. Krismer @ 104

    You’re not getting it. We all pay for that “crisis” the same as we pay for all the crisis’s. Your fascination with this very small part of an over all economic trend surprises me.

    We have the seen the same crisis in banking, auto, oil, food commodities, beef, pork, soy beans, corn, bio diesel, solar, and insurance. I see that derivatives over sight won’t go into effect until July. It’s all the same trade, and broker scams that the tax payer, and consumer pay for.

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  6. pfft

    By David Losh @ 101:

    RE: Kary L. Krismer @ 93

    You are once again right. If California had forced mom, dad, and the kids to pay 10%, 20% more then the wholesale markets would have flowed more freely. Profits would have been made and the whole thing would have blown over.

    You are right. The end result would be the same, we would all be paying more while the profits were stretched out over a longer period. There never would have been a need for holding electricity hostage in order to make a wind fall profit.

    exactly! if you didn’t give the thief your wallet he wouldn’t have taken your car! the innocent person is guilty.

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  7. pfft

    By Kary L. Krismer @ 4:

    RE: Kary L. Krismer @ 3 – These pollution limitations are probably the basis for pfft claiming there was a lot of extra capacity in the state.

    no that was the audiotapes of traders deliberately taking plants offline for
    “maintenance.”

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  8. pfft

    By Kary L. Krismer @ 99:

    By pfft @ 96:
    please please please read the links. they purposely took plants offline.

    Ex-trader charged in California crisis fraud
    http://articles.chicagotribune.com/2003-06-04/business/0306040215_1_john-m-forney-enron-trading-strategies-manipulation-of-western-energy

    is that good enough?

    search for the enron audiotapes?

    am I really supposed to believe you predicted the blankouts(of course except for when you were wrong).

    That link doesn’t say any of that. But let’s assume that’s the case. Why was I typically able to predict the time of the blackout 24 hours in advance using the ISO predictions of capacity and demand? Why was it that if I was wrong, it was usually because there was no blackout?

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  9. pfft

    By Kary L. Krismer @ 100:

    By pfft @ 98:
    the government stupidly gouged consumers and californians had to pay billions of extra dollars to have the lights back on.

    great deal for the electricity companies. I bet none of them gave any money to politicians in california?

    You don’t even understand the parties. There were three groups of parties (ignoring traders). Producers, utilities and consumers. California forced utilities to buy power for $100 and sell it for $10. They did that until they ended up in bankruptcy. California then spent $20B of it’s own funds guaranteeing the utilities buying power at peak times for $100 (or more) and selling it for $10. If they’d just allowed the utilities to sell electricity for $11 then the utilities could have bought it for about $5.

    you believe this even in the face of audiotapes and arrests of people who manipulated the market?

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  10. Kary L. Krismer

    By David Losh @ 5:

    RE: Kary L. Krismer @ 104

    You’re not getting it. We all pay for that “crisis” the same as we pay for all the crisis’s. Your fascination with this very small part of an over all economic trend surprises me.

    We have the seen the same crisis in banking, auto, oil, food commodities, beef, pork, soy beans, corn, bio diesel, solar, and insurance. I see that derivatives over sight won’t go into effect until July. It’s all the same trade, and broker scams that the tax payer, and consumer pay for.

    No, they are different, with the possible exception of the subsidized gasoline thing I mentioned.

    This was pure government stupidity creating a crisis. And the reason I’m focused on it is no one seems to understand how predictable what happened was. Instead they think Enron was bad and/or deregulation was bad. That’s not the lesson to be learned. The lesson learned should be politicians are bad at dealing with economic and business issues.

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  11. Kary L. Krismer

    By pfft @ 7:

    By Kary L. Krismer @ 4:
    RE: Kary L. Krismer @ 3 – These pollution limitations are probably the basis for pfft claiming there was a lot of extra capacity in the state.

    no that was the audiotapes of traders deliberately taking plants offline for
    “maintenance.”

    Take an economics course sometime. There will always be incentive for sellers to reduce supply. That increases price. Unfortunately if they unilaterally reduce supply, they lose because they don’t get the sales on the supply. So they need to conspire if that is going to work. OPEC is the best example of that. It survives. What you’re describing might be tried, but it doesn’t work very often and doesn’t last.

    Beyond that, again you need to get to the first step. Taking a plant off line would have no effect if the market conditions were proper. The reason they weren’t proper was California was holding down the price of electricity at the retail level. That created shortages just like with price controls on gasoline in the 70s. If they had simply raised the price, none of this would have occurred.

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  12. Kary L. Krismer

    By pfft @ 9:

    By Kary L. Krismer @ 100:
    By pfft @ 98:
    the government stupidly gouged consumers and californians had to pay billions of extra dollars to have the lights back on.

    great deal for the electricity companies. I bet none of them gave any money to politicians in california?

    You don’t even understand the parties. There were three groups of parties (ignoring traders). Producers, utilities and consumers. California forced utilities to buy power for $100 and sell it for $10. They did that until they ended up in bankruptcy. California then spent $20B of it’s own funds guaranteeing the utilities buying power at peak times for $100 (or more) and selling it for $10. If they’d just allowed the utilities to sell electricity for $11 then the utilities could have bought it for about $5.

    you believe this even in the face of audiotapes and arrests of people who manipulated the market?

    What of that do you think is wrong? Do you think there are not generators that sell to utilities? Do you think that the utilities don’t sell to consumers? Do you deny the fact that two large utilities lost so much money selling at a loss that they ended up in Chapter 11? Do you deny the fact that California went from having a $20B surplus to being on the verge of insolvency?

    BTW, arrests are not convictions. And in any case, I’m not saying no manipulation occurred. IF YOU WOULD LISTEN, WHAT I’M SAYING IS IT WAS ALL VERY PREDICTABLE GIVEN THE STUPID LEGISLATION PASSED BY CALIFORNIA. WHAT I AM SAYING IS IT WOULD NOT HAVE OCCURRED IF THEY HAD SIMPLY RAISED THEIR RETAIL PRICES.

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  13. Kary L. Krismer

    By pfft @ 8:

    am I really supposed to believe you predicted the blankouts(of course except for when you were wrong).

    Go to the ISO link. They have a graph showing capacity and projected demand, and back then it also included the next day. When the projected demand exceeded the supply, it was relatively easy to predict a blackout. It had to be a significant difference though because they could usually make up minor shortages somehow. So the only prediction was determining what you thought was significant. That came with a bit of experience.

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  14. doug

    Kary, the reason that your Econ 101 doesn’t work here is because electricity is a NECESSITY, and power companies are MONOPOLIES.

    Look, I’m a utility engineer, and NERC and FERC are a pain sometimes. That doesn’t mean that government is universally bad at business, or that regulations are bad. Sometimes they are, sometimes they aren’t.

    The local government directly tells us, blatantly, how much money we’re allowed to make. And I actually think that’s OK. Sometimes I wish it were a little more, sure. But again, we’re a monopoly, and what we sell is an absolute necessity for modern life.

    Sure, there’s always going to be examples of stupidity. For example, hydroelectricity is not defined as a renewable resource? Really? Also I gotta say that the fact that my water/sewer bill is not based on usage at all really chafed. Once I got my first water bill and figured that out, I went back and installed high-flow showerheads and started regularly watering my lawn again. My bill didn’t go up. Way to promote conservation, guys!

    Price fixing and criminal activity should never be excused, stupid governmental policy or not. California left the house unlocked. Yeah, it was dumb. The burglars who broke in and stole everything are still criminals, and still culpable for the actual losses.

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  15. Kary L. Krismer

    By doug @ 114:

    Kary, the reason that your Econ 101 doesn’t work here is because electricity is a NECESSITY, and power companies are MONOPOLIES.

    Correct it’s a monopoly. And to be clear I’m not saying it should be deregulated. What I’m saying is you can’t deregulate part and keep the rest regulated. Or if you are going to keep part regulated, you need to have smarter people doing the regulation.

    I believe Texas has deregulated the consumer side. That somehow gives consumers a choice of which company to buy their electricity from, presumably by requiring the utilities to share their lines. I’m haven’t really looked into the details on how that works.

    What’s amazing to me though is it would be accepted if I said something like: “Don’t buy into a condo where they don’t meter heat and water usage. You will end up paying more because no one cares how much they use.” This is the same thing. The people of California were using electricity without regard to scarcity. That meant they were using more. That meant blackouts.

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  16. Blurtman

    RE: pfft @ 109 – And folks actually went to jail at Enron for fraud. Those were the days.

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  17. Kary L. Krismer

    RE: Blurtman @ 16 – That was solely due to their accounting issues, right? That’s what made Enron such a great skapegoat in the energy crisis.

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  18. David Losh

    RE: Kary L. Krismer @ 117

    What Enron did was fraud. At best it was insider trading, at worst it was market manipulation.

    It’s only important in that they also packaged these trades.

    You were able to follow along, as though it were a predictable market, because it was predictable. It’s like following ETrade. You invest your dollars according to the charts, and graphs.

    You think you’re doing something when in reality you are being directed into a buy, and, or sell position.

    You keep quoting, and referring to a chart on the internet like it’s your Magic 8 Ball. It’s a chart created for the internet.

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  19. pfft

    By Blurtman @ 116:

    RE: pfft @ 109 – And folks actually went to jail at Enron for fraud. Those were the days.

    I know. I know.

    It’s hard to fathom that the Republican party jailed CEOs and passed Sarbanes-Oxley.

    I wonder what today’s Republican party would support. Woman’s suffrage? Civil rights?

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  20. pfft

    By Kary L. Krismer @ 17:

    RE: Blurtman @ 16 – That was solely due to their accounting issues, right? That’s what made Enron such a great skapegoat in the energy crisis.

    yeah that and intentionally causing an energy crisis.

    like with the GSEs, people blame the government when in reality it was private sector greed that caused the crisis.

    California had an installed generating capacity of 45GW, but at the time of the blackouts demand was 28GW. A demand supply gap was created by energy companies, mainly Enron, to create an artificial shortage. Energy traders took power plants offline for maintenance in days of peak demand to increase the price. Traders were thus able to sell power at premium prices, sometimes up to a factor of 20 times its normal value.

    http://en.wikipedia.org/wiki/California_electricity_crisis

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  21. pfft

    good review of the financial sector’s slice of the economy.

    Measuring The Financial Sector
    http://www.ritholtz.com/blog/2011/12/measuring-the-financial-sector-2/

    I bet that in a few years we’ll see a financial transactions tax to remedy this all.

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  22. Kary L. Krismer

    RE: pfft @ 20 – It’s not terribly surprising that Wikipedia reports commonly held beliefs of those who are gullible sheep.

    You really need to work on understanding the term “cause.”

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  23. Blurtman

    RE: pfft @ 119 – Well, they would support no financial fraud prosecutions, just like the current president.

    The current Republican party is tilted far right/crazy. The current president has been described as a moderate Republican, by comparison.

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  24. doug

    RE: pfft @ 121

    A financial transaction tax would be a freaking dream come true, and set a lot of things to rights, I think.

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  25. pfft

    By Kary L. Krismer @ 122:

    RE: pfft @ 20 – It’s not terribly surprising that Wikipedia reports commonly held beliefs of those who are gullible sheep.

    You really need to work on understanding the term “cause.”

    like I said there is almost nothing that a corporation can do that you won’t defend.

    so purposefully taking supply off at peak times due to “maintenance” isn’t cause enough for you?

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  26. pfft

    By Blurtman @ 23:

    RE: pfft @ 119 – Well, they would support no financial fraud prosecutions, just like the current president.

    The current Republican party is tilted far right/crazy. The current president has been described as a moderate Republican, by comparison.

    obama’s problem is he had too many wall streeters in his administration. tim geithner? he was at the NY Fed when all this went down. what was he doing? from everything I’ve read he’s interevened many times espousing the pro-wall street view. apparently he clashed with elizabeth warren.

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  27. pfft

    By doug @ 24:

    RE: pfft @ 121

    A financial transaction tax would be a freaking dream come true, and set a lot of things to rights, I think.

    obama was really for it but apparently larry summers squashed it.

    typical. will we ever have a liberal president in my lifetime? clinton was almost there but came up short.

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  28. Kary L. Krismer

    By pfft @ 25:

    By Kary L. Krismer @ 122:
    RE: pfft @ 20 – It’s not terribly surprising that Wikipedia reports commonly held beliefs of those who are gullible sheep.

    You really need to work on understanding the term “cause.”

    like I said there is almost nothing that a corporation can do that you won’t defend.

    so purposefully taking supply off at peak times due to “maintenance” isn’t cause enough for you?

    You really are dense. I’m not defending it (although what you’re referring to didn’t happen much). I’m saying the situation that allowed them to do that was caused by the legislation.

    What I’ve said is that standard economic theory would predict that the legislation California set up could result in situations where there were shortages. When that occurs, standard economic theory would further predict what types of things people will do. For example, they would predict price controls and actions by companies to get around the price controls. Both those things happened in CA.

    You could read a textbook from the 1970s and read about the types of things that occurred in CA in 2000-2001.

    So now do you have some understanding of the term cause?

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  29. pfft

    “For example, they would predict price controls and actions by companies to get around the price controls. Both those things happened in CA.”

    fraud. pure fraud. why are you defending this bad behavior?

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  30. Kary L. Krismer

    By pfft @ 29:

    “For example, they would predict price controls and actions by companies to get around the price controls. Both those things happened in CA.”

    fraud. pure fraud. why are you defending this bad behavior?

    I’m not defending it. I’m saying as soon as the California legislation was passed, it was predictable. It was virtually certain to happen (especially given other parts of the legislation which required utilities to sell off their generation capacity at a point in time where none had been built in over 10 years).

    If you put a $100 bill on the ground, someone will eventually walk by and pick it up. What happened in California was as predictable as that to anyone with even a basic understanding of economics.

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  31. pfft

    By Kary L. Krismer @ 130:

    By pfft @ 29:
    “For example, they would predict price controls and actions by companies to get around the price controls. Both those things happened in CA.”

    fraud. pure fraud. why are you defending this bad behavior?

    I’m not defending it. I’m saying as soon as the California legislation was passed, it was predictable. It was virtually certain to happen (especially given other parts of the legislation which required utilities to sell off their generation capacity at a point in time where none had been built in over 10 years).

    If you put a $100 bill on the ground, someone will eventually walk by and pick it up. What happened in California was as predictable as that to anyone with even a basic understanding of economics.

    yes the economics of pure fraud for gain.

    do you realize they are on tape?

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  32. Kary L. Krismer

    RE: pfft @ 131 – Yes I realize they are on tape. Not only has that been mentioned here, but I’ve known that a long time. I know the facts very well.

    The material on tape was basically the person picking up the $100 bill in my analogy. Something expected (although perhaps not that specific).

    BTW, economics deals with all sorts of human behavior, including fraud. It also deals with collusion, monopoly power, cartels, etc.

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  33. Kary L. Krismer

    I saw this last week, but a comment I saw today in an old thread reminded me to post. The top mutual funds for 2011 are those that invested in the safest thing–long term US government bonds.

    http://articles.sfgate.com/2011-12-22/business/30545528_1_treasurys-bond-prices-pimco-chief-executive

    They earned an average return of 32%!

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  34. Blurtman

    RE: pfft @ 126 – And how did those Wall Streeters get there?

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  35. Kary L. Krismer

    By Blurtman @ 34:

    And how did those Wall Streeters get there?

    Private jet? ;-)

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  36. pfft

    RE: Blurtman @ 134 – what do you mean?

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  37. Blurtman

    RE: pfft @ 136 – You said :”obama’s problem is he had too many wall streeters in his administration.”

    I said “And how did those Wall Streeters get there?”

    For example, were they there when Obama arrived?

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  38. pfft

    By Blurtman @ 137:

    RE: pfft @ 136 – You said :”obamaâ��s problem is he had too many wall streeters in his administration.”

    I said “And how did those Wall Streeters get there?”

    For example, were they there when Obama arrived?

    oh, I see what’s going on here.

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  39. Blurtman

    RE: pfft @ 138 – Obama appointed them. It was easy to see how toxic Summers would be based upon his checkered background. He was a hedge fund consultant just prior. Geithner was an incompetent Wall Street regulator when head of the NY Fed. His appointment thrilled Wall Street. Add to that the smattering of ex-Goldman Sachs employees, and you get the picture.

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  40. pfft

    By Blurtman @ 139:

    RE: pfft @ 138 – Obama appointed them. It was easy to see how toxic Summers would be based upon his checkered background. He was a hedge fund consultant just prior. Geithner was an incompetent Wall Street regulator when head of the NY Fed. His appointment thrilled Wall Street. Add to that the smattering of ex-Goldman Sachs employees, and you get the picture.

    you’re trying to start something though.

    “obama’s problem is he had too many wall streeters in his administration”

    abundantly clear.

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  41. Blurtman

    RE: pfft @ 140 – Oh, I get it, let’s just move on. War crimes, fraud, corruption – let’s just move on.

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