Then the whole blow up happened, and suddenly I took an interest in financial education that I never had before. Everything I’ve read has convinced me that while getting in to debt (on a FIXED RATE, thank you) for a reasonable house is acceptable, and MAYBE a reasonable (used) car purchase on a loan can be done, for all other reasons it’s just a massive trap you can catch yourself in. It’s much better to have money in the bank and a solid budgeting plan.

Granted I didn’t get in to the AMAZING levels of debt some of my friends did, but the small burn I felt combined with the mess the finance industry has put this country in have left me reticent to trust any money to the jackals currently slashing and burning their way through the economy. I’ll keep a savings account, maybe some CDs, but using credit to buy things or investing in anything other than saving up to build my own business seems idiotic at this point. Particularly with how the finance industry is fighting (and winning) for the right to keep up the same behavior.

They will get no confidence from unemployed, underemployed, or in my case simply wary customers (I REFUSE to be labeled “consumer”) that have now done their homework and refuse to be suckered. The 23rd ended with stocks up due to increased profits from blue chips and investors saying “WHEW, IT’S ALL OVER GUYS!” but unemployment numbers continue to look bad, and the profits came without any increases in revenue.

My question for the Masters of the Universe: How are you expecting to restore confidence when you’re firing everyone you need to buy your junk, and letting the ones still employed know that you intend to keep being irresponsible with their money?

Here was the sentiment at the time:

http://www.time.com/time/business/article/0,8599,1861311,00.html

And for the record, it’s a rare thing that Blodget and I agree on anything.

Goldman Sachs (evil, but still smart) estimated that the ideal Taylor rate was -6% – yes, well below the zero bound. They also estimated that achieving an effective rate that low would require credit facilities several times larger than what the Fed was then deploying.

The obvious response was QE. This did not come till much much later, and when it did, it (in comnbination with a Geithner plan that was deeply flawed but at least had some details) clearly marked the beginning of the stabilization. However, the stabilization occurred at an unemployment rate that is ALREADY higher than the “bad case scenario” projected by the Fed in late 2008.

Meanwhile, at the same time, the dollar broke a long term secular losing trend to GAIN against other currencies, in spite of sustained trade deficits. I suspect the US Fed may have delayed QE because the ECB charged forward with its strong-euro policy which I suspect was designed to replace the dollar as the world reserve currency. And yes, I believe this was a mistake, and caused significant unnecessary harm to the world economy. (And yes, the ECB is the greater villain and Europe is still paying the price, but the Fed wasn’t blameless.)

It shows that he probably engineered it on purpose!

If you want to sleep tonight, Don’t Read It!

“In contradiction to the prevalent view of the time, that money and monetary policy played at most a purely passive role in the Depression, Friedman and Schwartz argued that “the [economic] contraction is in fact a tragic testimonial to the importance of monetary forces” (Friedman and Schwartz, 1963, p. 300).
…..

Of course, the stock market crash only worsened the economic situation, hurting consumer and business confidence and contributing to a still deeper downturn in 1930.”

Governor Ben S. Bernanke
Money, Gold, and the Great Depression.
At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University,
Lexington, Virginia.
March 2nd, 2004

You can read also: Preparing for the Crash, The Age of Turbulence Update: 22/07/09., which tries to accomplish Greenspan Mission Impossible:

“Much as we might wish otherwise, policy-makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances. Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated – if people see them coming, then the markets arbitrage them away.

That is mission impossible. Indeed, the international financial community has made numerous efforts in recent years to establish such oversight, but none prevented or ameliorated the crisis that began last summer. Much as we might wish otherwise, policy makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances. Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated – if people see them coming, then the markets arbitrage them away.”

Alan Greenspan
The Age of Turbulence: Adventures in a New World [Economic Order?].

Plea for a New World Economic Order. explains the nature and causes of economic depressions and proposes a plausible alternative solution.

Without it, the banks have no incentive to act fairly or honestly. They have no reason to compete so intensely that they drive other out of this market or out of business. Antitrust law, if enforced, won’t allow it and the cost of doing this would exceed the benefit to be derived from it. They have “market power”. There are few lenders and many borrowers. Borrowers compete intensely for loans, but, banks don’t have to. They establish an informal cartel through signaling rather than collusion, thereby, keeping industry profits higher than they would be if they competed “to the death.” It’s called being “smart competitors”. Borrowers, because there are so many small ones and so few banks (I know, there are 7,000+ banks in the US. But, there are 200 million borrowers), are not “smart competitors” (they have too much to compete with each other for limited funds offered by these banks). Thus, the banks are collectively better off than they would be if they actually competed.

Without granting the Fed their expertise, assume for the moment that they are, indeed, THE experts. What evidence do we have that they would act in defense of the borrower on the conclusions that they reach about any predatory or near-fraudulent behavior of lenders? My sense is that the Fed has demonstrated, or certainly evidenced, a strong bias toward preserving the the banking system “as is”, i. e., the status quo. So what if they’re the experts? I doubt that their expertise would benefit the retail borrower in cases of conflict between the bankers and the borrowers. Knowing how the car works doesn’t imply that a) you know how to drive it, b) that you’ll drive it safely or c) that you’ll drive it to the right destination.

if Geithner is the idiot that you and Blodget suggest, why did Obama pick him?

Was he chosen because he was an idiot?

Well today I got a love letter (okay a very nice form letter) bragging on how the merger of Morgan Stanley Smith Barney happened to better meet my needs. But I was shocked to see their new company brags of managing 1.3 trillion (!) in assets. I guess moral hazard is a thing of the past. I find that quiet concentration of assets into fewer and fewer hands with little input or protest unnerving. We really are not in Kansas anymore.

I have half a mind to write a satirical response to my new pen pals, the Chairman and CEO, to thank them for thinking enough of my needs that they built an unsustainable monopoly. There must be only sunshine and rainbows and unicorns in their part of the world. Sadly I live with the 99% of Americans who worry about being laid off and paying our 20% increase in health care premiums every 9 months.

Short answer: we’re toast.

And you’re right. From a rational point of view, we’re going overboard by getting this personal. I just wish everyone else felt the same way.

I also hadn’t given thought to it, but you’re also probably right that Bernanke is simply the only face we see hiding a fractious Fed.

We are CITIZENS. We own the government, and the government in turn regulates through charters and laws the very existence of corporations. Period. The sense however is that our ownership rights are being infringed by powerful interests, if not outright stolen.

This theft can only be accomplished readily if the myth is maintained that the citizens are “consumers” and the rightful possession of corporations, rather than the reverse.

You, or anyone, can send me private E-mail at
alan17b0@gmail.com
This is best if we are going to reminisce about
wonderful wonderful Eritrea and the tragic times
on which it has fallen.

Back to economics. It is possible, even likely,
that Rubin, or Geithner, or Summers, are pleasant
people who it would be fun to have a beer with –
preferably Melotti, of course. But the fact
remains that they are from and of Wall Street,
and the present well-being of the big banks
reflects that IMHO. I hope we ALL know that
according to Michael Moore every other house in
Flint Michigan stands vacant.

I also just discovered that there is a sub-program
of the TARP called HAMP, the Home Affordable
Modification Program. The GAO has some interesting
stuff about this; check out
http://www.gao.gov/highlights/d09837high.pdf
for the highlights of their just released report.
It seems that every home-owner seeking relief
under this program must “undergo counseling”. ! ! !

Is there any requirement that the heads of
Goldman Sachs, or AIG, undergo counseling?

It is not a good thing to be a poor person in
these United States.

Best wishes,

Alan