Weekly Open Thread (2014-07-07)

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Here is your open thread for the week of July 7th, 2014. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.

Note: The comment limit in open threads is 25 comments per person.

NOTICE: If you have comments to make about politics or economics that do not somehow directly relate to Seattle-area real estate, they may be posted in the current Politics & Economics Open Thread.  If you post such comments here, they will be moved there.

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About 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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

53 comments:

  1. 1
    Blake says:

    Interesting “Central Bank smackdown!”… when to take the “punch bowl” of easy $$ away from the party??
    http://www.ritholtz.com/blog/2014/07/central-bank-smackdown/
    … The opening riposte came from the Bank for International Settlements, the “bank for central banks.” In their annual report, released this week, they talked about “euphoric” financial markets that have become detached from reality. They clearly – clearly in central banker-speak, that is – fingered the culprit as the ultralow monetary policies being pursued around the world. These are creating capital markets that are “extraordinarily buoyant.”

    The report opens with this line: “A new policy compass is needed to help the global economy step out of the shadow of the Great Financial Crisis. This will involve adjustments to the current policy mix and to policy frameworks with the aim of restoring sustainable and balanced economic growth.”

    The Financial Times weighed in with this summary: “Leading central banks should not fall into the trap of raising rates ‘too slowly and too late,’ the BIS said, calling for policy makers to halt the steady rise in debt burdens around the world and embark on reforms to boost productivity. In its annual report, the BIS also warned of the risks brewing in emerging markets, setting out early warning indicators of possible banking crises in a number of jurisdictions, including most notably China.”

    “The risk of normalizing too late and too gradually should not be underestimated,” the BIS said in a follow-up statement on Sunday. “Particularly for countries in the late stages of financial booms, the trade-off is now between the risk of bringing forward the downward leg of the cycle and that of suffering a bigger bust later on,” the BIS report said.

    Maudlin writes: On July 2, two days after the release of the BIS report, Janet Yellen took the stage at the IMF conference and basically said (translated into my local Texas patois), “Kiss my grits.” She was having nothing to do with risk and productivity and spent her time defending the low-rate environment she has been fostering in the US. With just a brief hat tip to the fact that monetary policy can contribute to risk-taking by going “too far, thereby contributing to fragility in the financial system,” she proceeded to maintain that monetary policy should “focus primarily on price stability in full employment because the cost to society in terms of deviations from price stability in full employment that would arise would likely be significant.” (You can read the speech here if you have nothing else to do and your recent entertainment options have been limited to watching the microwave cook.)

    In other words, Janet has her dual mandate, and the rest of the world can go pound sand.

    My own interpretation is that Mario said, “I’ll see the Fed’s tapering and raise it by €1 trillion.”

    Wow! A double-teamed double smackdown! Even The Rock would be impressed.

    …The next crisis is shaping up to look a lot like the last one, just with a different cause. It is going to be a liquidity crisis.

    (The whole piece is well worth reading… If and when they take away the punch bowl, pain ensues… sooner or later!?)
    http://www.ritholtz.com/blog/2014/07/central-bank-smackdown/

  2. 2
    Blurtman says:

    Yellen est un imbecile. Quelle un costume vide!

  3. 3
    Blake says:

    Excellent piece from the perspective of a patient, doctor, and small business owner… what a f’ing nightmare! The private insurance companies were horrible to start with, now Obamacare has made them MORE POWERFUL! Nice job Barack… You didn’t create the mess, but you made them stronger! You own the problem now…
    http://www.pnhp.org/news/2014/july/godzilla-has-risen-the-insurance-industry-under-the-aca
    -snip- The Affordable Care Act, despite the best of intentions, has fortified a monster. By mandating that everyone purchase insurance, the industry is stronger and feels emboldened to take even more advantage of patients and health care providers. Exponentially larger and more powerful than the agencies assigned to oversee it, the industry finds ways to circumvent and resist restrictions.

    This leech has gotten firmly latched on to the lifeblood of American medicine, and is sucking money and energy out of medical care from all angles. Like a cancer, is has created harmful malfunctioning growths that waste our precious health care dollars. How long are we going to stand for this?

    I wish “Obamacare” was what the conservatives imagine it to be and hate — a comprehensive, Medicare-like, government-run system — and I wish I could sign up for it.

    (The author Emily Dalton is a pediatrician at Eureka Pediatrics in Eureka, Calif. A shorter version of this article appeared the North Coast Journal in Humboldt County, Calif., under the title “The Insurance Leech” )

  4. 4
    pfft says:

    By Blurtman @ 2:

    Yellen est un imbecile. Quelle un costume vide!

    Yellen is a very capable central banker. the people criticizing her policies have been wrong for years.

  5. 5
    Blake says:

    By pfft @ 4:

    By Blurtman @ 2:

    Yellen est un imbecile. Quelle un costume vide!

    Yellen is a very capable central banker. the people criticizing her policies have been wrong for years.

    Years? She’s only been Chair of the Fed 6 months.
    Stay the course…. Bubbles are good for us!

  6. 6
    Blurtman says:

    RE: pfft @ 4 – Please provide a list of her top five accomplishments. Not failing up titles, but actual actions and decisions. For example, foresaw the derivatives crisis and took firm action to prevent the fallout.

  7. 7
    DrRick says:

    Good article.

    Fel Temp Reparatio
    RE: Blake @ 3

  8. 8
    DrRick says:

    RE: Blake @ 3

    Good article.

    Fel Temp Reparatio

  9. 9
    pfft says:

    By Blake @ 5:

    By pfft @ 4:

    By Blurtman @ 2:

    Yellen est un imbecile. Quelle un costume vide!

    Yellen is a very capable central banker. the people criticizing her policies have been wrong for years.

    Years? She’s only been Chair of the Fed 6 months.
    Stay the course…. Bubbles are good for us!

    so we need unemployment now because maybe just maybe in the future we might see unemployment from a bubble? no! history shows raising rates in times like these are not good.

    You also seem to have forgotten recent history. europe twice since 2008 raised rates and almost immediately had to lower them. if you compare the US to Europe we are doing far better and they have been employing austerity and raising rates.

    “Stay the course…. Bubbles are good for us!”

    far better than widespread unemployment. you can’t even prove there is a bubble.

  10. 10
    pfft says:

    By Blurtman @ 6:

    RE: pfft @ 4 – Please provide a list of her top five accomplishments. Not failing up titles, but actual actions and decisions. For example, foresaw the derivatives crisis and took firm action to prevent the fallout.

    I don’t know her top five accomplishments I’ll research it. just about everyone says she is more than capable. nothing she has done since she became Fed Chair has been bad. the only thing you could say is that growth and umeployment aren’t as good as they should be and maybe she should not cut back on bond purchases.

    “For example, foresaw the derivatives crisis and took firm action to prevent the fallout.”

    was she in position to prevent the failout. you aren’t going to find anyone with the resume who perfectly saw everything. who are you going to nominate peter schiff? ron paul? they are jokes. they don’t have very good track records either.

    if you want a Fed Chair who cares more about people and their employment rather than inflation she is your woman. she is more 99% than anyone you will get in this position. hopefully she raises her inflation target as recent research shows it should be higher than the 2% target.

  11. 11
    pfft says:

    By DrRick @ 7:

    Good article.

    Fel Temp Reparatio
    RE: Blake @ 3

    Maudlin is worse than a coin flip. his guru grade is 40%. you are better off flipping a coin.

    http://www.cxoadvisory.com/gurus/

  12. 12
    Blake says:

    By pfft @ 11:

    By DrRick @ 7:

    Good article.

    Fel Temp Reparatio
    RE: Blake @ 3

    Maudlin is worse than a coin flip. his guru grade is 40%. you are better off flipping a coin.

    http://www.cxoadvisory.com/gurus/

    Maudlin was citing reports by the Bank for International Settlements (the central banker for the central banks) and the Financial Times… It is significant that these outlets are worried about the q-infinity/cheap money policies fueling bubbles. But if pfft and Janet say don’t worry, be happy, then who are we to argue with them!?

  13. 13
    Blake says:

    By pfft @ 9:

    “Stay the course…. Bubbles are good for us!”

    far better than widespread unemployment. you can’t even prove there is a bubble.

    I am a statistician and understand how hard it is to “prove” something. It is also very difficult to prove man-made/anthropogenic global warming, but the evidence is overwhelming. So I think it is best to take precautions… Bubbles do happen and when the equity markets go up 150% while the economy sucks it is a bad sign and not a good sign.

    … (Yellen) explained an “increased focus on financial stability risks is appropriate,” but the potential costs of diminishing economic performance “is likely to be too great” to give such risks “a role in monetary decisions, at least most of the time.” In other words, to raise short-term interest rates by 0.5% would so destabilize the economy, Yellen has decided to sit back, let the asset bubbles burst, then blame the bankers, speculators, and home-buyers who should have known better.

    After the deluge, Yellen will be called before some committee, and state, as she did in her confirmation hearing as Federal Reserve governor in 2010: “We failed completely to understand the complexity of what the impact of the decline – the national decline – in housing prices would be in the financial system. We saw a number of different things and we failed to connect the dots. We failed to understand just how seriously the mortgage standards, the underwriting standards, had declined, what had happened with the complexity of securitization and the risks that were building in the financial system around that.”

  14. 14
    Blurtman says:

    RE: Blake @ 13 – Who owns the Fed?

  15. 15
    whatsmyname says:

    RE: Blake @ 13

    ” In other words, to raise short-term interest rates by 0.5% would so destabilize the economy, Yellen has decided to sit back, let the asset bubbles burst, then blame the bankers, speculators, and home-buyers who should have known better.

    No, that’s not what she said at all. She said that the increase will have decided negative impacts on our economy. You don’t do that on the basis of generalized doomsday speculations without form or substance. What are the bubbles, specifically? Isn’t this supposed to be about timing?

    After the deluge, Yellen will be called before some committee, and state, as she did in her confirmation hearing as Federal Reserve governor in 2010: “We failed completely to understand the complexity of what the impact of the decline – the national decline – in housing prices would be in the financial system.

    This shows real balls. The idea that they weren’t quick enough to ease because they didn’t understand the dangers of tight policy is now evidence that she is biased toward easing when she should be tightening, although the understanding of why is still missing.

    Lets go back to post 1 for a minute, and look at Maudlin there. Maudlin has it that, “In other words, Janet has her dual mandate, and the rest of the world can go pound sand.” Imagine flouting the will of not only the BIS, but the Financial Times (a newspaper) as well. The ECU, Bank of England stand with her, Sweden actually dropped their rate in response. I guess Europe doesn’t count when we’re talking “rest of the world” for John. Every time this guy says, “in other words” or “in my local Texas patois”, or anything similar, he is gearing up for a big straw-man whopper.

    Besides, BIS has it wrong when it says markets are extraordinarily buoyant, and low interest rates are the culprit. You can easily verify that there are huge amounts of cash desperate to find some level of yield, but not much productive investment available. Assets are being bid up because investors are desperate for yield. The mood is not “euphoric”, it’s “grim”, (except maybe for the traders who plan to get in and get out, and burn everyone they touch). But a little interest rate hike; that would help – help folks with dead capital get a return for nothing and help China. It wouldn’t help the US economy, productive businesses or their customers though.

    Tell me this. Why is it for Austrian variants, that it is never time to bring the punchbowl as stimulus doesn’t stimulate the economy, but it is always time to take it away for fear of overstimulating the economy?

    Rant over; thanks for reading.

  16. 16
    Jonness says:

    By pfft @ 9:

    you can’t even prove there is a bubble.

    That’s exactly what you claimed in 2007 while schooling us on housing! How did that turn out for you?

  17. 17
    Blake says:

    By Jonness @ 16:

    By pfft @ 9:

    you can’t even prove there is a bubble.

    That’s exactly what you claimed in 2007 while schooling us on housing! How did that turn out for you?

    Ouch!

  18. 18
    Blake says:

    By Blurtman @ 14:

    RE: Blake @ 13 – Who owns the Fed?

    Here’s what the Fed sez…
    http://www.federalreserve.gov/faqs/about_14986.htm
    The Federal Reserve System fulfills its public mission as an independent entity within government. It is not “owned” by anyone and is not a private, profit-making institution.

    The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation’s central banking system, are organized similarly to private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

    In other words…
    http://www.globalresearch.ca/who-owns-the-federal-reserve/10489
    So let’s review:
    1. The Fed is privately owned.
    Its shareholders are private banks. In fact, 100% of its shareholders are private banks. None of its stock is owned by the government.
    2. The fact that the Fed does not get “appropriations” from Congress basically means that it gets its money from Congress without congressional approval, by engaging in “open market operations.”
    3. The Fed generates profits for its shareholders.
    The interest on bonds acquired with its newly-issued Federal Reserve Notes pays the Fed’s operating expenses plus a guaranteed 6% return to its banker shareholders. A mere 6% a year may not be considered a profit in the world of Wall Street high finance, but most businesses that manage to cover all their expenses and give their shareholders a guaranteed 6% return are considered “for profit” corporations.
    (end quote)

    Blake sez: I’d love to get a guaranteed 6% return per year! Wouldn’t you? “Not operated for profit”… ?
    Yes, the Fed is owned and run by private bankers, but managed so as to benefit the American people and not the banks… of course!

  19. 19
    Blake says:

    RE: whatsmyname @ 15
    Nice little rant… One comment.
    You wrote: “You can easily verify that there are huge amounts of cash desperate to find some level of yield, but not much productive investment available. Assets are being bid up because investors are desperate for yield.”

    Yes, the corporations are sitting on $1T+ in cash, but they are also borrowing HUGE amounts at virtually no interest … to buy back their own stocks! A large percentage of the “investors” you write of are the corporations themselves and the speculators, hedge funds etc… margin debt is at record highs. All this is juiced by near zero rates which continue to distort the markets. It doesn’t end well, but the longer it goes on the more destruction we’ll see when the bubble bursts…
    Look at the charts here:
    http://www.zerohedge.com/news/2014-07-08/stock-buyback-shocker-companies-using-secured-bank-loans-repurchase-stock
    … net debt is at the highest level ever while corporate cash has never been lower as a percentage of corporate debt!!

  20. 20
    pfft says:

    LOL.

    Survey: Most Republicans Who Bought Obamacare Coverage Like Their Plans
    http://talkingpointsmemo.com/livewire/republicans-like-obamacare-commonwealth-fund

  21. 21
    pfft says:

    By Jonness @ 16:

    By pfft @ 9:

    you can’t even prove there is a bubble.

    That’s exactly what you claimed in 2007 while schooling us on housing! How did that turn out for you?

    I never said that. I was a housing bear for years.

  22. 22
    Blurtman says:

    RE: Blake @ 18 – OK. So the Fed is owned by a consortium of banks. So how likely is it that the head of the Fed will enact policies that are not in the best interest of the owners of the Fed? Or identify owners that received bail out money? Or police its owners? Or take toxic securities off the hands of its owners? Or provide free money to its criminal and incompetent owners?

  23. 23
    Blake says:

    By Blurtman @ 22:

    RE: Blake @ 18 – OK. So the Fed is owned by a consortium of banks. So how likely is it that the head of the Fed will enact policies that are not in the best interest of the owners of the Fed? Or identify owners that received bail out money? Or police its owners? Or take toxic securities off the hands of its owners? Or provide free money to its criminal and incompetent owners?

    Exactly… but what’s more interesting – and something I didn’t know until after 2008 – is that the Fed is also responsible for supervising the banks – – not the US Treasury! Nice job there Mr. Greenspan…

  24. 24
    Blurtman says:

    RE: Blake @ 23 – Yes, of course, it’s right on their website. And so it was quite amazing that Geithner, when queried as to why he was sitting on his hands as NY Fed president when Wall Street was engaging in a crime spree of epic proportions, said he did not view his responsibilities to be those of a regulator. Translation: “I chose not to perform the responsibilities of my job, and the economy melted down.” Sounds great! We’ll confirm you as Treasury Secretary because Wall Street loves you.

    And recently Yellen dodged the question as well, stammering about whether she would regulate criminal banks during her hearing, and stating that she would get back with an answer sometime in 3030.

    Of course you cannot crack down on the owners of the company that you work for, can you?

  25. 25
    whatsmyname says:

    RE: Blake @ 19

    I was wondering how you could fit so may errors into such a compact space, when there it was….. the mothership. So let’s start with your zerohedge item:

    what companies are doing now is taking on secured debt and using the proceeds to fund buyback their stock or fund dividends!

    It is here that the hair of anyone who has ever underwritten any debt, secured or unsecured, should stand on end. Because this revelation shows that unlike the last bubble, when levered buybacks once again went through the roof, at least they were unsecured and the bank did not have a lien on any assets should the company ultimately file bankruptcy as a result of a debt issuance spree.

    This time, however, in order for shareholders to cash out, existing bondholders will be primed by the bank when the rate cycle finally turns and all the companies that were scrambling to reward investors now and up going tits up. It also means that banks effectively become lienholders in companies without having any actual collateral backing their loans

    1. As anyone who has actually underwritten any debt knows, he has the bank’s position in this exactly backwards. If things really go sideways, it is not necessarily pretty for the bondholders, and much less so for equity. But the banks do have collateral, and are first in line for proceeds.

    2. Loans for dividends are rare, and require special circumstances. Banks are suspicious of this activity. Banks are individual, so you can always find a bank that does a lot of what most banks won’t touch… and someone who knows about them.

    3. Shareholders who are bought out aren’t being rewarded. The idea is to reward the remaining stockholders. Equity is and should be more expensive than debt. For a company that is in position do this, a higher concentration of debt boosts return for those that remain.

    All of this is 101 stuff that actually works in the real world.

    It certainly means that instead of using the liened cash to invest in growth, or even maintenance, CapEx, so critical for the non-recovering economy, the only thing that is happening is that banks are effectively funding corporate shareholders with secured debt

    1. There is massive cash available. These loans aren’t crowding out CAPEX; lack of growth in CAPEX lending is based on low demand due to slow/weak recovery.

    2. “Much of” loan growth is shareholder payout? “Much of” loan growth is based on business growth – for the right businesses Much C&I loan growth is also real estate – commercial real estate. That’s because C&I lenders have goals, and locking in long term money at what are perceived to be very low rates is a good hedge for many middle to upmarket business owners.

    3. A slow recovery is not a non-recovery.

    Back to your post,

    1. “The corporations” are not a monolith. The corporations sitting on excess cash are not generally the same corporations as those doing the big borrowing.

    2. Similar to 3 above, low interest is not “virtually no interest” or “near zero interest”.

    It doesn’t end well, but the longer it goes on the more destruction we’ll see when the bubble bursts…

    I picture you waving your arms; maybe a little “booga booga” at the end. I am still not scared. What you are getting off the internet is what you should expect: misinformation. I don’t think that conflation and redefinition to the extreme provides much light. You seem interested in the subject; I recommend some college courses. Eventually it is more fun than playing with the “experts” on the grassy knoll.

  26. 26
    Blurtman says:

    RE: whatsmyname @ 25 – “…..a higher concentration of debt boosts return for those that remain.”

    Do tell. Are you saying that ceteris parabus, a company that has more debt will offer a higher rate of return to shareholders than the same company that has less debt?

  27. 27

    Forecasts aren’t worth much, but if these are accurate (or overly optimistic) that would not be a good sign for the economy. Of course, Obama will blame it on Bush, or Congress, or anyone else, because nothing is ever his fault.

    http://gazette.com/economists-lower-forecasts-for-us-growth/article/feed/136623

  28. 28

    RE: Blurtman @ 26 – Wouldn’t it depend on what they do with the proceeds of the borrowing? But yes, assuming they are successful, debt has limited return (expense), so the equity owners would do better versus if the company financed the same project through a new issuance of stock, assuming the money is spent on something that at least services the debt.

  29. 29

    Seattle is the 3rd fastest market (DOM) per the Realtors.

    http://realtormag.realtor.org/daily-news/2014/07/11/10-fast-moving-housing-markets?om_rid=AADdSv&om_mid=_BTwD-pB87LwAiO&om_ntype=RMODaily

    (Note, different cities probably do their calculations differently.)

  30. 30
    pfft says:

    By Kary L. Krismer @ 27:

    Forecasts aren’t worth much, but if these are accurate (or overly optimistic) that would not be a good sign for the economy. Of course, Obama will blame it on Bush, or Congress, or anyone else, because nothing is ever his fault.

    http://gazette.com/economists-lower-forecasts-for-us-growth/article/feed/136623

    it’s Congresses fault. he’s been trying to pass an infrastructure and jobs bill for years and they won’t pass it.

  31. 31
    pfft says:

    By Blake @ 13:

    By pfft @ 9:

    “Stay the course…. Bubbles are good for us!”

    far better than widespread unemployment. you can’t even prove there is a bubble.

    I am a statistician and understand how hard it is to “prove” something.

    Ok then try it as a mediocre internet commentator!

    I am talking about CAPE, PE10 or expected return or whatever else you can come up with.

    how do you know that you won’t do more damage trying to prevent a bubble than cleaning up after one?

    Here’s why the Fed shouldn’t try to pop bubbles with higher rates
    http://www.washingtonpost.com/blogs/wonkblog/wp/2014/07/10/the-fed-shouldnt-try-to-pop-bubbles-just-ask-sweden/

  32. 32
    pfft says:

    By Blake @ 23:

    By Blurtman @ 22:

    RE: Blake @ 18 – OK. So the Fed is owned by a consortium of banks. So how likely is it that the head of the Fed will enact policies that are not in the best interest of the owners of the Fed? Or identify owners that received bail out money? Or police its owners? Or take toxic securities off the hands of its owners? Or provide free money to its criminal and incompetent owners?

    Exactly… but what’s more interesting – and something I didn’t know until after 2008 – is that the Fed is also responsible for supervising the banks – – not the US Treasury! Nice job there Mr. Greenspan…

    A lot of people believe it was the Fed’s meddling in the free market that caused the housing bubble. Actually it was NOT meddling in the free market that allowed the housing bubble to happen. Greenspan applied a laissez-faire Ayn Rand philosophy to lending standards and allowed garbage loans for too long. It doesn’t matter what the interest rate is when you can get a liar loan.

  33. 33

    By pfft @ 30:

    By Kary L. Krismer @ 27:

    Forecasts aren’t worth much, but if these are accurate (or overly optimistic) that would not be a good sign for the economy. Of course, Obama will blame it on Bush, or Congress, or anyone else, because nothing is ever his fault.

    http://gazette.com/economists-lower-forecasts-for-us-growth/article/feed/136623

    it’s Congresses fault. he’s been trying to pass an infrastructure and jobs bill for years and they won’t pass it.

    You, like Obama, don’t know the difference between the government creating jobs and creating conditions that allow job growth. The government cannot be the source of jobs. We will all go broke eventually with that type of thinking.

  34. 34
    whatsmyname says:

    By Blurtman @ 26:

    RE: whatsmyname @ 25 – “…..a higher concentration of debt boosts return for those that remain.”

    Do tell. Are you saying that ceteris parabus, a company that has more debt will offer a higher rate of return to shareholders than the same company that has less debt?

    I am saying that if you reunite that phrase with the sentence from which you took it, “For a company that is in position do this”, the answer is unequivocally “yes”. That is because driving shareholders and bank credit officers are nearly never stoned 10th graders who don’t realize that the return on the total capital base needs to exceed the required return on debt for a business to really be viable. After that it’s just arithmetic. I sure hope you don’t think the idea that leverage levers results in whatever direction they are already taking is a clever curve ball, Captain Obvious. But, ceteris paribus, it’s looking that way.

  35. 35
    Blurtman says:

    RE: pfft @ 32 – You are terribly wrong. Greenspan screwed up in a very large way by:

    1.) instituting an easy money, low interest rate policy

    2.) and not exercising a regulatory role over the criminal banks.

    Yellen is a direct clone. And Obama’s boy, Timmay, was an abject failure in regulating the criminal Wall Street banks. Obama certainly admired that quality.

    You have never been more wrong, and that is saying a lot.

    “However, a closer look at the Greenspan record reveals that his flawed monetary policy and absence as a regulator bear a significant amount of the responsibility.

    To understand the monetary policy failure, look back to when Mr. Greenspan set out to deflate the dot-com bubble. In 2000, he kept raising interest rates in the face of a slowdown, thereby driving the economy into recession. In order to undo the problems created by his tight money policy, he then overshot in the other direction, taking rates to as low as 1%. He kept rates at 1% for a year, and below 2% for nearly three years.

    In turn, that easy money policy ignited the housing market by bringing mortgage interest rates to all time lows. In his commentary, Mr. Greenspan admitted the low mortgage rates had the direct impact of pushing up housing prices, but he neglected to mention an important indirect impact. Low-cost borrowing encouraged excessive risk-taking in the financial markets, and led investors to pump borrowed funds into all kinds of investments, including the various mortgage-lending vehicles.”

    Subprime, Easy Money and Greenspan’s Role

    http://online.wsj.com/news/articles/SB119768188895030835

  36. 36
    pfft says:

    By Kary L. Krismer @ 33:

    By pfft @ 30:

    By Kary L. Krismer @ 27:

    Forecasts aren’t worth much, but if these are accurate (or overly optimistic) that would not be a good sign for the economy. Of course, Obama will blame it on Bush, or Congress, or anyone else, because nothing is ever his fault.

    http://gazette.com/economists-lower-forecasts-for-us-growth/article/feed/136623

    it’s Congresses fault. he’s been trying to pass an infrastructure and jobs bill for years and they won’t pass it.

    You, like Obama, don’t know the difference between the government creating jobs and creating conditions that allow job growth. The government cannot be the source of jobs. We will all go broke eventually with that type of thinking.

    yes it can. research shows that during times like this.

    “We will all go broke eventually with that type of thinking”

    and how could you possibly know that? how could you possibly now that without knowing how much spending we’re calling for?

  37. 37
    pfft says:

    By Blurtman @ 35:

    RE: pfft @ 32 – You are terribly wrong. Greenspan screwed up in a very large way by:

    1.) instituting an easy money, low interest rate policy

    rates are even lower now. try again.

  38. 38
    pfft says:

    You guys know that the Fed doesn’t set mortgage rates right? it influences but doesn’t set them. housing bubble have happened with rates in the double digits.

  39. 39
    Blurtman says:

    RE: pfft @ 37 – Ummm, yes. Hello.

  40. 40
    pfft says:

    By Blurtman @ 39:

    RE: pfft @ 37 – Ummm, yes. Hello.

    home prices kept falling despite low rates. that is my point. remember how the tim showed us that interest rates don’t necessarily correlate with home prices going up or down?

  41. 41

    RE: pfft @ 36 – Wow, you are seriously arguing that an economy based on indefinite and unending artificial job creation (i.e. Obama’s economic plan) is self-sustaining? Your economic policy might as well be based on a $50 minimum wage, because that makes about as much sense.

    You need conditions for private job growth for an economy to thrive.

  42. 42
    Blurtman says:

    RE: whatsmyname @ 34 – Ajax Corporation takes on more debt to buy back shares. The leveraged company goes bankrupt. Existing shareholders find that their rate of return is zero, quite inferior to the return of those bought out shareholders.

  43. 43
    whatsmyname says:

    RE: Blurtman @ 42 – Every day someone gets in the car to go do something, but is killed in an automobile accident instead. People who stayed home did much better. Never use an automobile when you leave the house; that is for fools!

  44. 44

    By Blurtman @ 42:

    RE: whatsmyname @ 34 – Ajax Corporation takes on more debt to buy back shares. The leveraged company goes bankrupt. Existing shareholders find that their rate of return is zero, quite inferior to the return of those bought out shareholders.

    That is a bit different than what I was addressing in that there the debt isn’t incurred to engage in an activity which will increase profits (although it might possibly increase EPS). And it’s actually an example of the executives of a company taking a short term outlook.

    With a liquid stock market there is really little justification for stock buybacks, but it makes the stockholders feel better about their investment (they become wealthier) and makes management look better (the stock price will rise–at least temporarily). Probably establishing or increasing a dividend program would be better in most instances (although some stockholders might not like that because of tax issues).

  45. 45
    Blurtman says:

    RE: whatsmyname @ 43 – Driving is unequivocally safe, ain’t it? And you lend what you do not have.

  46. 46
    whatsmyname says:

    RE: Blurtman @ 42
    btw, what did you think I meant as I ended post 34 with

    “I sure hope you don’t think the idea that leverage levers results in whatever direction they are already taking is a clever curve ball, Captain Obvious. But, ceteris paribus, it’s looking that way.”

    Fraud and fortune are always with us. I had already anticipated your lame gotcha. I felt bad in being so unsubtle, but as with everything related to finance, I guess there is no underestimating your ability to not understand.

    RE: Kary L. Krismer @ 44

    This is a capital structure issue. Use of the funds is not relevant to the discussion. To compensate for added risk, equity returns should be higher than debt returns. If they are not, the money is better in debt. Corporations issue stock to get money they can’t get in the debt market because the anticipation is that the enterprise returns will justify the dilution of profits. Over time and according to fortunes, corporations will rebalance in either direction, buying back or issuing additional stock.

  47. 47
    Blurtman says:

    RE: Kary L. Krismer @ 44 – Yes, debt can be good, bad or neutral. But money does not really exist. Digital credits can be created at will for some. And some can lend what they do not have. The whole system is a bit of a fraud, which becomes more apparent every day.

  48. 48
    Blurtman says:

    RE: whatsmyname @ 46 – Not playing gotcha, just challenging faulty assumptions, and a bogus economic system.

  49. 49
    whatsmyname says:

    RE: Blurtman @ 48
    There was no faulty assumption – only your misunderstanding.
    You don’t know enough about the economic system to provide anything of use in the discussion. (Yes, I read the two blind men describe the Fed. There isn’t enough time in the world. In fact no more time today).

  50. 50
    pfft says:

    Paul Krugman points out that rates are too high. he’s right we are up against the zero-bound and that is why the Fed purchased and is still purchasing bonds.

    http://krugman.blogs.nytimes.com/2014/07/12/the-meme-is-out-there/?_php=true&_type=blogs&module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body&_r=0

  51. 51
    pfft says:

    By Kary L. Krismer @ 41:

    RE: pfft @ 36 – Wow, you are seriously arguing that an economy based on indefinite and unending artificial job creation (i.e. Obama’s economic plan) is self-sustaining?.

    you are setting up a pretty good strawman there. could you post a link to this proposed “indefinite and unending artificial job creation” plan? I’ve never heard of it.

    “You need conditions for private job growth for an economy to thrive.”

    like demand?

  52. 52
    pfft says:

    By Blurtman @ 47:

    RE: Kary L. Krismer @ 44The whole system is a bit of a fraud, which becomes more apparent every day.

    the fractional reserve system has been with us for a 100 or so years…capital requirements are increasing. you think people just now are figuring out the fractional reserve system?

  53. 53

    By pfft @ 51:

    By Kary L. Krismer @ 41:

    RE: pfft @ 36 – Wow, you are seriously arguing that an economy based on indefinite and unending artificial job creation (i.e. Obama’s economic plan) is self-sustaining?.

    you are setting up a pretty good strawman there. could you post a link to this proposed “indefinite and unending artificial job creation” plan? I’ve never heard of it.

    “You need conditions for private job growth for an economy to thrive.”

    like demand?

    So then you would support the $50 minimum wage then as being a viable policy because it would create demand? I thought so since you’re still supporting increased deficit spending over 5 years after an economic event. And you want a cite for it being never ending? Now that’s funny.

    Ironic you mention demand since you repeatedly mock me for mentioning Obama’s really really stupid criticism of companies spending money in Vegas. He killed demand with his comments about Vegas because he’s the only president in US history with zero understanding of secondary effects. He finally figured that one out and apologized for the comment, but you still don’t understand demand. That doesn’t keep you from bringing it up though.

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