We all love our computers, and the internet. However, how we’ve used them both, how we’ve allowed younger people who are not seasoned decision-makers to use these tools, and how we’ve allowed seasoned decision-makers to have retired at very young ages … I think we’ve made huge mistakes.

They have until October.

Politics always trumps Free Markets and it’s all calculated!

If this fiasco hasn’t turned-around by then, the O-Team will send in “The Cleaner” and the Election Cycle will rein.

Result:
- misallocated Capital encouraged overcapacity and the Social Contract with Labor is null & void
- End of ’09, Bargaining & Hope is lost and Anger causes heads to roll (i.e., B.B., L.S. and T.G. are out as the nation moves closer to socialism)
- 2010 will bring Depression and will end with Acceptance
- 2011 re-election campaign kicks in with promises to Labor of a “Road to Recovery”
- 2012 Capital gets the backseat, Labor is in the driver’s seat. O-Team is re-elected with a majority in the House

The fate of capitalism as we know it, will forever have changed!

Election Cycles:
…note election year Novembers, the February following election year Novembers has been an excellent indicator as to whether the election year November would mark[s] an important top. In every case since at least 1968, when February following election year November moves to a higher high than the January following election year November, the market has proceeded to do very well.

Conversely, when the post-election year February is unable to move higher than the post-election year January, a significant market decline has always followed. This may be coincidence but it has proved prescient for at least the past 40 years.

It seems to me that the whole investment-&-dividend game can only work for a wealthy minority drawing on the life-energies of the many. If you get too many on board and not enough floating the boat, it won’t work. It may appear to work for a while but it won’t be grounded, it will be some kind of bubble. Soon after the RRSP thing began, the middle classes started playing around in the the stock market, and Wall Street affairs became a common subject of conversation. I think the large number of people trying to play the dividend game made its collapse inevitable.

BTW what an excellent string of commentary! Wow.

For over 25 years now, Central Bankers across the world have adhered to the view that as long as inflation is not showing up, there’s no problem. And as asset values are not included in any money velocity measures, we have bubbles but no inflation.

And whenever inflation actually starts showing up.. they ‘adjust’ statiscical methods.. and it disappears again!)

How can you ‘stimulate’ economy out of a recession which is so severe EXACTLY because economy has been OVERSTIMULATED with cheap credit for 25 years?

And the stock market tech mania where Nasdaq went up all the way to 5000 was mostly bid up with people’s own money. Because there was a limit how much margin people were allowed use to buy shares. The US government legislated this margin limit after the 1929 stock market crash.

Perhaps some similar borrowing limit needs to be put on all types of loans. When people loose mostly their own money. Then it’s mostly their own problem and not a problem for the whole economy.

People want to learn only a tiny lesson from a big problem. This is not good. (I was going to say “micro” and “mega” instead of “tiny” and “big”, but I figured “micro” means something else in this blog.)

The problem for regulators is with innovation. They don’t know how to regulate new things; the new things haven’t failed before—they’re too new—so they get a pass. When they fail, the regulators say “we should watch out in the future.” That just drives innovation to unregulated areas.

I conjecture that non-self-aware financial models/algorithms will always fail because they cannot anticipate their own impact upon the market. In this case the models did not anticipate that their own use would drive the system outside of the limited historical data used to assess risk. (I.e. I’m saying that the use of mortgage securitization led to subprime lending to keep the pipeline flowing, i.e. it created its own ruin.)

If regulators and investors are ever going to anticipate the next problem, they need to predict the effects of innovation upon the market before it fails. That’s a very tall order. Especially considering that predictions usually say more about the seer than the future.

If you want to argue the point, let me give you an example. I am a prudent person. I wouldn’t think of buying real estate without 20% down. Why? Because I want to protect my downside. I don’t want to walk away. That’s why I live on the Great Plains and not in California. I knew prices were ridiculous there. As a prudent person using my own money, I had no desire to overpay. I cared about price. Now imagine if I had to pay 100% cash? Would I be more or less prudent? That’s why it is only debt which makes such behavior possible.

Your comment about regulators indicates a complete lack of understanding. Regulators want bubbles because everything they do encourages the sort of reckless behavior that leads to them. If I say I care about my health but I sit around and eat bacon all day, I don’t care about my health. What I say isn’t important. What I do says it all. Lending is profitable. Bankers run the government. Regulators work for the government and the government works for the bankers.

Regulators?

Too funny for words!

1. The consumer spent instead of saved.
2. The consumer pulled equity from the one asset he had…a personal residence….and spent.
3. Financial and industrial firms failed to properly forecast the % of total spending that was pulled forward through debt.
4. These same firms overexpanded on the basis of unrealistic and unsustainable growth forecasts.

Once the consumer stopped spending, it all fell apart rather quickly AS IT ALWAYS DOES. You might want to check your history on the Dutch Tulip Bulb Crisis as well. Start with Kindleberger. Tulip bulbs seem bizarre to us but when you think about what people were paying for a share of, oh say Pets.com for example, it doesn’t look so bizarre any more.

The mathematics imply that the long-term result of our financial system is for the financial sector to eventually own all the money, and all the goods and assets (through foreclosure and repossession). In the meantime, the financial sector becomes more and more desperate to find piggy banks in which to put their money. They think they are simply looking for returns, but on a more basic level it is a search for storage space. Such a system, over a very long time horizon, must be unstable. I hope so, because otherwise it means permanent enslavement for any who thought they might have had “certain unalienable Rights”…

It was clear at that time — 1984 — that a great fad had run through the banking sector, lending (what at that time seemed) huge sums to Mexico, Argentina, Brazil, etc. My paper concerned the possible role that the IMF could play as an international version of the FDIC — coordinating creditors so as to be able to keep the international debtors sufficiently alive so that the maximum amount feasible could be paid back.

But these fads — Latin American lending, Savings and Loan go-go days, junk bond takeovers, brokering Japanese investment in U.S. assets, dot-com/tele-com, housing, securitization — are all serial bubbles. And they all seem to me to stem from a common complaint amongst our rentier class — that the normal safe return on capital is simply not acceptable. That the money to be made by investing in a company that makes things people want is so pre-1973.

It seems like there are too many assets chasing too little market share and that our financial system has been chasing its tail — and swallowing it regularly — since, oh, about 1973.