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Damnit Jim, I'm a doctor not a stock broker!
August 7, 2007 8:20 PM   Subscribe

Just how bad is it Jim? Cramer, no not Kramer, melts down on live TV and tells a very large audience to stop trading. Is the US economy heading toward collapse?
posted by spish (133 comments total) 19 users marked this as a favorite

 
I, for one, will continue to be only vaguely aware of his existence.
posted by neuron at 8:27 PM on August 7, 2007 [2 favorites]


A bit of anecdotal proof that the "economy", as such, really is a collective delusion.
posted by Burhanistan at 8:32 PM on August 7, 2007 [1 favorite]


Nothing peps up an afternoon interview like a giant blast of Mexican ice in the green room.
posted by The Straightener at 8:36 PM on August 7, 2007 [3 favorites]


Isn't the free market supposed to save us all?
posted by ao4047 at 8:37 PM on August 7, 2007 [1 favorite]


The Straightener: Yeah, one could surmise that he took a hit just before On Air time because he was pretty calm for a minute or two before he suddenly went to full volume.
posted by Burhanistan at 8:38 PM on August 7, 2007


His delivery does not inspire confidence in his opinion.

Wait.

HIS DELIVERY DOES NOT INSPIRE CONFIDENCE IN HIS OPINION!!!

Was that more convincing?
posted by nanojath at 8:38 PM on August 7, 2007 [3 favorites]


So is this it? Should I start stockpiling rice and beans again , like backin 1999 ?
posted by nola at 8:38 PM on August 7, 2007


Jim Cramer should invest in some mood stabilizers.
posted by Poolio at 8:45 PM on August 7, 2007 [2 favorites]


None of you can say you weren't warned!
posted by Blazecock Pileon at 8:46 PM on August 7, 2007 [1 favorite]


see what happens when "the masters of the universe" in the investment scene finally come up against some real adversity? ... they lose it, badly ... they cry and cry for big daddy ben to give them their toy^H^H^H^Hlow interest rates back ... they insist to the rest of the world that they're entitled to a good market, because that's what they want

the baby boomers show their true face again ...

interesting times, as the chinese would say, are coming
posted by pyramid termite at 8:48 PM on August 7, 2007 [1 favorite]


You really have to see the Cramer meltdown in context, namely, that Cramer is a douche. Here he is last November telling people how wonderful the housing market is doing and how they shouldn't believe the naysayers. It's really damning.

So is this scathing response to Cramer's meltdown, which explains exactly how shitty Cramer's meltdown is. The link was sent to BoingBoing after Xeni posted an embarrassingly ill-informed and shallow gush - "I've been a fan of Jim Cramer for many years, and I've seldom seen him flip out as epically and fantastically as he does in this clip," instinctively siding with a guy whose generally horrible advice has probably hurt thousands of small investors. Way to go, Xeni.
posted by mediareport at 8:52 PM on August 7, 2007 [11 favorites]


On one hand, he's an ex hedge fund manager, so he does have some insight into what the hedge funds are doing manipulation-wise. On the other hand, he has made some BAD calls over the years.
posted by smackfu at 8:53 PM on August 7, 2007


The link was sent to BoingBoing after Xeni posted an embarrassingly ill-informed and shallow gush...

I think "an embarrassingly ill-informed and shallow gush" goes without saying when discussing Xeni's posts.
posted by Poolio at 8:56 PM on August 7, 2007 [6 favorites]


Yeah, but praising Cramer like that does real damage. It's unbelievable she hasn't apologized or somehow acknowledged she was off-base with that one.
posted by mediareport at 8:57 PM on August 7, 2007


So, someone who hypes stocks on his show is now saying stop trading equities?

He is right about the mortgage thing, though. The collapse of the high-wire variable-rate mortgage market, which has been shakily holding up consumer spending for years, is one hell of a neutron bomb. It will fuck some shit up. He's definitely not the only one sounding that alarm.
posted by ninjew at 8:59 PM on August 7, 2007


I don't know shit about any of this stuff, but I'll tell you this much , I've been in construction for 13 years and I've never seen so many houses for sale in my small town, and so few new homes being built.
posted by nola at 9:05 PM on August 7, 2007 [2 favorites]


What's bullshit is what's happened to International stocks. I have my retirement in overseas funds, and still got burned. The stocks dropped to where they were in April or so. So ridiculous.

The video is epic lulz, though.

As far as lowering the fed rate, They have pretty much said that the people who got burned are the ones who 'deserved' it. Heh.
posted by delmoi at 9:08 PM on August 7, 2007


Cramer's an idiot.

He's also doing a nice stopped-watch imitation. He's more or less right; we're headed for a truly dire financial meltdown. The longer it takes to happen, the worse it will be.

It's been delayed from the stock market crash of 2000; we should have gone into a terrible recession, likely near-Depression level, but the Fed forestalled the crunch by injecting boatloads of cash into the economy. This papered over the problem, but it set off two new bubbles that entirely dwarf the stock market... real estate and debt.

On top of THAT, we've built a massive derivative structure, where every financial entity of any size is joined at the hip with nearly every other. Nobody has to live with the loans they make; they package them up into 'securities' and sell them to other people, or hedge risk against other entities. In other words, they take stupid risks, offsetting the risks to other companies, who then hedge against others, and so on.

Inject enough risk (poor financial decisions) into any financial system, and it will eventually collapse.

I couldn't watch this whole thing, but Cramer seems to be ranting about wanting a bailout. That's an incredibly bad idea on many fronts... we're supposed to reward people for being stupid now? The prudent people get hurt, and the risk-takers get rewarded? That's ridiculous. We need desperately to relearn prudence.

But, while you may have heard of 'too big to fail' -- as int, the government won't let entities past a certain size collapse -- you probably haven't heard 'too big to save' very often.

I think you will over the next few years.
posted by Malor at 9:08 PM on August 7, 2007 [19 favorites]


Is the US economy heading toward collapse?

The only collapse this clip show evidence of is one of Jim Cramer's coronary arteries.
posted by Wash Jones at 9:10 PM on August 7, 2007


The financial firms had a license to print money for a few years. Some firms were giving bonuses larger than the employees' yearly salaries.

Now some of Cramer's commute telephone buddies may have to sell one of their 3 vacation homes, and Cramer calls it "Armageddon".

He supposedly has a net worth of 100 million. What could possibly drive him to put on a tie and go to work every day and shriek and scream on TV except an unimaginable ego and a badly inflated sense of self-importance.

He quite plainly states and believes that he receives more market information than the Fed Chairman has access to. Because he's on teevee.

The man is delusional.

Yes, the housing markets all across the country are cooling. But, in some markets, 50% of all home purchases were for 2nd homes, investment homes.

People who make their living "flipping" houses are going to be taken to the cleaners, having 2-3-4 properties they can't unload.

Most people who work a regular job and have a regular home will be fine. Maybe no taking a 3rd mortgage to finance that trip to Aruba.

There will be fallout, yes. But I do not think it is "Armageddon", because financial Armegeddon can not be alleviated by simply dropping the fed rate by 2%.

Certain markets (California, Arizona, Nevada) are going to be crushed. People are going to find themselves in 400k houses that they can only sell for 320k. But, the same house was only worth 200k in 2001.
posted by Ynoxas at 9:13 PM on August 7, 2007 [15 favorites]


Ynoxas,have I told you latey that I have a man crush on you?
posted by nola at 9:16 PM on August 7, 2007 [1 favorite]


He quite plainly states and believes that he receives more market information than the Fed Chairman has access to. Because he's on teevee.

Ynoxas, the Fed is clueless. Greenspan was an idiot. He caused this whole problem.

They may have access to lots of data, but that doesn't mean they understand it.

Economics isn't called the dismal science for nothing.
posted by Malor at 9:24 PM on August 7, 2007


He is right about the mortgage thing, though. The collapse of the high-wire variable-rate mortgage market, which has been shakily holding up consumer spending for years, is one hell of a neutron bomb. It will fuck some shit up. He's definitely not the only one sounding that alarm.

No, he's not the only one sounding the alarm, but that doesn't mean they're all right. Unfortunately we have a much bigger problem on our hands than this, and it's that the dollar is dying. A lot of people are going to get screwed in the process, but Cramer needs to see the bigger picture.

This youtube comment pretty much sums it up perfectly:

Sorry Cramer, "Helicopter Ben" will only RAISE rates, because his primary job is to save the dollar (and the government) at all costs. Condo Flippers and Day Traders will get the shaft, as any other poor citizen who's taken on variable interest rate debt. If they lower rates... oh man, say hello to hyperinflation as the whole world dumps dollars.
posted by fusinski at 9:35 PM on August 7, 2007


Certain markets (California, Arizona, Nevada) are going to be crushed.

There are a lot more markets than that being crushed by the state of the economy. The variable rates skyrocketing combined with incomes decreasing in our big manufacturing cities has sent foreclosure through the roof for regular folks in non-bubble markets.

Don't kid yourself--this is hurting a lot of regular people with regular jobs in regular homes, too.
posted by fusinski at 9:41 PM on August 7, 2007


Now I know the world is coming to an end. You've found a coherent quote on YouTube.
posted by ninjew at 9:43 PM on August 7, 2007 [6 favorites]


I should buy a lotto ticket.
posted by fusinski at 9:46 PM on August 7, 2007


Now some of Cramer's commute telephone buddies may have to sell one of their 3 vacation homes, and Cramer calls it "Armageddon".


The Armageddon is , if they have to sell 3 vacation homes I have to sell my first born. I think that's how that breaks down with the dismal science .
posted by nola at 9:54 PM on August 7, 2007


The government does not -- or should not, anyway -- be in the business of offering "bad luck insurance."

Whenever it gets into that line of work, it usually only ends up screwing things more badly than they would have been otherwise. (C.f. National Flood Insurance, etc.)

The situation may get really bad, but that doesn't mean that a bailout of people who made bad calls (foreseeable or not) is a good idea.

Nobody said that "the land of opportunity" was only opportunities for profit; it also means there are plenty of opportunties to get screwed.
posted by Kadin2048 at 9:55 PM on August 7, 2007 [1 favorite]


Malor: I don't think I can successfully interact with you if you think Greenspan is an idiot. We are just too far apart to communicate.

He had his failings to be sure, and there is no way I would be friends with his Randian ass or have him over for a dinner party. I think he would be insufferable on a personal level.

But Greenspan presided over the longest economic expansion in American history. He carried America through some scary times. His sole focus was on containing inflation, even when there was very little inflationary pressure, to the great consternation to most people on the Street. Meanwhile rampant inflation was all across the globe throughout the 1990's.

He became the master of the "soft landing", having to handle, what 3 of those in his term that I can think of.

But the Street placed way, way, WAY too much emphasis on his casual remarks and actions. Remember the Briefcase Watch? Where you could try to predict the rate changes based on which briefcase he carried to the meetings?

The Street was OBSESSED with Greenspan. A simple comment could cause MARKED market reaction. Remember "irrational exuberance"? Greenspan's opinion was, 90% of his term, at odds with what the Street wanted.

The subprime thing, yeah, that was obviously a mistake in hindsight. A huge mistake. I think his error was in taking a side on it. He had no business promoting or demoting it. It was not his purview.

But those who blame the bubble solely on him point to the lowered rates, but yet the traffic in the subprime market didn't lessen during the increasing rates beginning in 2004. It only accelerated as rates continued to rise. This was a failing not of the Fed but of the lenders themselves.

In other words, the Fed tried for over 2 years to "dissuade" the lenders from being so free with the pursestrings. Look how it worked. Fuckall.

This is the lenders' fault. Pure and simple. How they sold ARMs with 2 years of upward marching interest rates is simply beyond me.

Ynoxas
B.S. Economics, '96
PhD dropout (for good reason), '98

on preview:

fusinki, yes you are right, of course regular people are getting hurt by this. But that, from what I understand, is not the PRIMARY source of the hurt. Do you really think the large financial firms and hedge funds are panicking over the little house with a white picket fence primary domicile foreclosures?

They are worried about the evaporation of the cottage industry (heh) that has sprung up the last 6 years around house flipping.

A great deal of that debt is held by doctor's wives who needed a hobby and wild speculators who think 40% appreciation in 2 years is sustainable.

I'm not trying to minimize the suffering of the people who are in trouble in their primary residence.

I do not have an ARM, I have a very good standard fixed rate mortgage on a modestly priced home and an almost 800 credit score, and yet if I lost my job and couldn't find another relatively soon I too would be in trouble.

This is a complex issue. But this man screaming on teevee at the behest of his millionaire buddies is absurd. It's also profoundly irresponsible, and if MSNBC had any integrity of any kind, they would shitcan him for trying to induce a panic.
posted by Ynoxas at 10:13 PM on August 7, 2007 [11 favorites]


The annotated version (by iTulip.com) is much better, if only because it periodically quiets the shrieking in order to explain what Cramer just said.
posted by stefanie at 10:18 PM on August 7, 2007 [2 favorites]


So those of us that are renting right now at well below the going rate, socking money away, and living debt-free, we're going to be OK, right?

And maybe even be able to buy a cheap house to live in after the market collapses?

Or are we fucked, too?

Ynoxas? Buehler? Anybody?
posted by infinitywaltz at 10:32 PM on August 7, 2007


No, not Kramer?
posted by flapjax at midnite at 10:33 PM on August 7, 2007


Jim Cramer and this guy, seperated at birth?
posted by milnak at 10:39 PM on August 7, 2007


Or are we fucked, too?

You're in the best position possible. When the economy crashes, that's when you start investing in real estate. You can even help people by purchasing their foreclosed homes and setting up rent-to-own scenarios allowing them to stay in their homes. Deals abound, and values nowhere to go but up.
posted by fusinski at 10:54 PM on August 7, 2007 [1 favorite]


purchasing their foreclosed homes

Note, of course, that you're going to be able to do this only with a high, steady income, excellent job security, and a sizeable down payment, because no one's going to fuck around with iffy loans.
posted by blacklite at 11:04 PM on August 7, 2007


Greenspan is no idiot but played his part in the machine quite well.

The Greenspan SSTF compromise of the mid-80s, where the upper-quintile has their taxes lowered while the lower-quintiles sees their pension money get spent on bombers and nuclear carriers . . . that was evil genius.

Raising the funds rates coming into the 2000 election, then dropping them to the floor coming into the 2004 election . . . gee, no coinkidinkal timing there, no-sir-ee.

Pushing trillions of funny-money dollars into the Bush (the 2nd) Economy via MEW and lowered mortgaging guidelines . . . either that was idiocy or evil genius.
posted by Heywood Mogroot at 11:41 PM on August 7, 2007 [3 favorites]


So those of us that are renting right now at well below the going rate, socking money away, and living debt-free, we're going to be OK, right?

You still need a job to live, right?

Yeah, we're fucked, too.
posted by dirigibleman at 12:11 AM on August 8, 2007


Ladies and gentlemen, here he is: the Mad Prophet of the Airwaves, Howard Beale, Jim Cramer!
posted by Potsy at 12:23 AM on August 8, 2007


Woo hoo! I'd wanted to buy more stocks for protection from the dollar's eminent decline to 1/2 euro and 1/3 pound.

How does one buy under these market conditions? Just buy a little bit every couple months?
posted by jeffburdges at 12:32 AM on August 8, 2007


Malor: He's more or less right; we're headed for a truly dire financial meltdown. The longer it takes to happen, the worse it will be.

It's been delayed from the stock market crash of 2000; we should have gone into a terrible recession, likely near-Depression level, but the Fed forestalled the crunch by injecting boatloads of cash into the economy. This papered over the problem, but it set off two new bubbles that entirely dwarf the stock market... real estate and debt.

It's worrying how few people understand this - general public opinion is that the US and UK are experiencing an endless economic miracle in which the value of your house will double every few years, giving the majority an enormous source of cheap money via Mortgage Equity Withdrawal. Eddie George let the cat out of the bag in a remarkable (and barely reported) admission a few months ago:

21 March 2007
The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday...

Lord George, who headed the Bank for a decade from 1993, revealed to MPs on the Treasury Select Committee that he knew the approach was not sustainable. "In the environment of global economic weakness at the beginning of this decade... external demand was declining and related to that, business investment was declining," he said. "We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption...

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term.

We're now well into the medium term and the party barge lumbers on.

infinitywaltz: So those of us that are renting right now at well below the going rate, socking money away, and living debt-free, we're going to be OK, right?

There's a lot of analysis of this strategy over at the occasionally good housepricecrash.co.uk. Although the idea that you'll be able to simply pick up a bargain after a possible market crash isn't necessarily true unless you can pay in cash - credit may be a lot harder to come by.

Comment on the Cramer video from housepricecrash.co.uk, too

Cramer vs Crystal Method (MP3)
posted by boosh at 12:58 AM on August 8, 2007 [3 favorites]


Meanwhile, China threatens "nuclear option".

Is the US economy heading toward collapse?

Probably.
posted by loquacious at 1:04 AM on August 8, 2007


Does Cramer have Tourette's?
posted by homunculus at 1:10 AM on August 8, 2007


I keep reading about US folk worried about China holding US treasuries and this "nuclear option" of selling them.
I can't see any way the Chinese can break the US economy without killing their own.
I wrote the below in a recent askme:
Back to China, in many ways the huge economic investment in the US is today's equivalent of cold war MAD. Yes, the Chinese could break the US economy, but only at the expense of their own. I'm hoping this is the thing that will stop the two powers going toe to toe at some point in the next 25 years.
Remember this is trade, so it isn't negative. Yes, China has these bulky investments, but the US has cheap cameras. You wouldn't swap your greenbacks for the Chinese gear unless you thought you were getting a good deal, and the Chinese wouldn't do the deal either unless they felt they were getting a fair price. So both parties magically are better off after the trade, which incidentally, is why many argue globalisation is good for rich and poor alike, as maximising trade maximises the number of times the magic value creation happens.

Whether the Chinese are making a good long term deal, by holding US debt, and whether the Americans are making a good long term deal by buying Chinese consumables, only time will tell. But it is important to realise it isn't some dark governmental conspiracy. Every time you swap a greenback for a camera you are pushing the process along. If your personal view, like some of the isolationist commentators, is that allowing others to have your money is bad, you must forgo the trade.
Then you won't have cameras.
By keeping the RMB low, the Chinese have chosen to get fewer greenbacks for each trade, but make it upon volume, just like Walmart or McDonalds. Since their competitive advantage at the moment is cheap labour to produce lots of volume, this is pretty sensible. Conversely, US Pharmaceutical companies, for example, have pretty much chosen the opposite, as their ability to make many different types of drugs is limited, as each medicine is a huge investment of smarts, but they can then charge top dollar, even if it means less are sold in poor nations. With the US educated populace and IP laws, this looks pretty smart too.

What would be dumb would be trying to fight the free action of the markets by adding tariffs, for example. This just puts a drag on the trade process, reducing the number of magic value creation steps. Better to help the suddenly unemployed US textile workers to up their skills through training, rather than try and hold everyone back through more taxes.

Thats the theory anyway. It can be a lot harder at a micro level when you are the t-shirt maker in Nebraska
posted by bystander at 3:17 AM on August 8, 2007


The man is a moron, and so are the people who follow his investment advice.
posted by caddis at 4:06 AM on August 8, 2007


Since I read this a few days ago, and today this FPP, I started thinking: hmm a Great Depression of 2008? It's right on time.

OTOH Jim Cramer couldn't predict a flood after a hurricane, so why is this anything?
posted by psmealey at 4:14 AM on August 8, 2007 [1 favorite]


That repeated cut to graph was freakin' annoying. I'm going to call someone.
posted by sluglicker at 4:18 AM on August 8, 2007


Well, FWIW I've recently started buying shares again - using my own money - for the first time in several years. The best time to buy is when folks are panicking. As they have been the last few days / weeks. There are some damn good shares out there that have had their prices beaten to death and are dirt cheap.

We're not quite at the "blood in the streets" point yet, not even sure if we're close but there has been a lot of panic selling recently. I'm not saying it's onward and upward from this point, we probably will see further declines, but my horizon is long term and I like to purchase as prices decline ("buy on weakness...").

I moved about one third of my investment assets into Gold & Silver back in 2004, and I'm still long. Started taking positions in oil earlier this year. I'd like to buy more if the opportunity presents itself. I've long held the opinion that wars are inflationary and just look what happened to the US economy after Vietnam. The OPEC oil shock not withstanding, you just can't print money like is done in wartime and not expect to have to pay the bill someday. The Fed knows this, and I believe they are going to inflate their way out of the problem (make the debt less painful in real terms). So that alone is a strong arguement for gold. I think there is still a good chance the public inflation numbers will sharply jump - let's face it, iniflation already has spiked and most of the G7 governments have a strong incentive bordering on moral hazard to understate inflation as they hold large obligations that are tied to official inflation rates (e.g., Social Security, TIPS, etc). Consulting my most recent copy of The Economist I note they report US / UK annualised inflation rates at 2.7% / 2.4% respectively. I'm dubious, to say the least.

And I agree with bystander - if China was gonna dump they'd be doing it, not talking about it. Worry about China selling US treasuries when you see bond yields jump 1000 basis points.
posted by Mutant at 4:19 AM on August 8, 2007 [1 favorite]


Christ, what an asshole.
posted by Skorgu at 4:31 AM on August 8, 2007


Since I read this a few days ago, and today this FPP, I started thinking: hmm a Great Depression of the late aughties and teens? It's right on time.

OTOH Jim Cramer couldn't predict a flood after a storm, so why is this anything other than a hack cable celebrity making an ass of himself?

As for the other risks to the economy, people more knowledgeable than he have predicting a crash since about the mid 70s or so, when America first became a debtor nation. Not to say that it won't happen, but predicting the apocalypse has traditionally been a failing business model.
posted by psmealey at 4:38 AM on August 8, 2007


I've seen plenty of people claim that they've always made money doing the opposite of Jim Cramer.

fyi, Financial message boards are, beyond any doubt, the best place for low brow trolling :

Jesus told me to short sell Monsanto becuase he will punish them for playing god. etc. etc.
posted by jeffburdges at 4:39 AM on August 8, 2007


Boosh: Crystal Method ? sounds more like fatboy slim to me.
posted by Pendragon at 4:45 AM on August 8, 2007


I don't know what the guy's freaking-out about. He and his ilk will land on their feet after all this crap is sorted-out. Fat bonuses included.
As always, the real fallout and pain will be transfered downhill to the average, middle-class guy on the street. They're the ones who will be made to pay for the financial industry's mistakes and hubris....as always.

I heard a report on NPR yesterday about a middle class family who never had a problem paying their mortgage...until the mortgage holder went tits-up. Then, the company that took over the debt started jacking-up the payments every month to where they were demanding something like $2000/mo. payments. Foreclosure came next. That's what you're going to start seeing.
posted by Thorzdad at 4:49 AM on August 8, 2007


He should just change his phone number. All his problems would go away!
posted by dobbs at 4:56 AM on August 8, 2007


The most successful trader I know (and he's VERY successful) is basically out of equities and the yankee dollar at the moment. In fact out of all fiat currencies. Which means in gold and hard assets of various kinds. I think he overvalues gold and undervalues other commodities but basically his strategy make complete sense.

When governments print money (and what the hell has Bush done but print money?), the value of currency falls relative to hard assets. This explains, in part, the recent spate of takeovers and hedge fund acquisitions... when you are swimming in devaluabe currency, get rid of it in favour of har assets with tangible non-currency valuations.

I'm inclined to believe we may be headed for a moment of Ultimate Truth re fiat currencies which would certainly justify the current panicky feelings. You can only print money for so long. I know that CW is that no other countries can afford to let the dollar slide, but that's only true until it isn't.
posted by unSane at 4:57 AM on August 8, 2007 [1 favorite]


Boosh: Eddie George let the cat out of the bag in a remarkable (and barely reported) admission a few months ago

Barely reported is right. I wrote about this in late 2005/early 2006 for ROOF, Shelter's magazine. We were studying mis-selling in the sub-prime market, and George had been telling lecture audiences that the Bank of England had kept rates low to finance a consumer boom on cheap money, in full knowledge that it would cause the housing market to overheat and ultimately leave many families homeless and destitute. Meanwhile, we reported that lenders were selling expensive mortgages to poor families who could not afford them when rates were low, let alone after they started to rise, that insolvency rates were rising, that IVAs were rising, that repossessions were rising, and that all these things were going to start rising fast in the middle future.

And now we see repossessions and bankruptcies are rising fast, just as the article I wrote predicted. This wasn't any great prescience or insight on my part: George knew this would happen; the government knew this would happen; most social housing and homelessness professionals knew this would happen. But you'd have to read a professional journal like ROOF to know about it, because the media at large was not interested. NGOs like Shelter suffer from quite a Cassandra complex, I can tell you.
posted by WPW at 5:34 AM on August 8, 2007 [3 favorites]


I really cannot abide by anyone who calls Greenspan an idiot. I echo just about everything Ynoxas said about the Greenspan tenure and his ability to successfully navigate some very tricky waters.

The current crisis falls squarely on the shoulders of the lenders (and the buyers!) who offered products to people who, from a simple mathematics point of view, never should have qualified for these products and from buyers who didn't read the fine print carefully enough.

I agree with the person who said that the government should not get into the "bad luck insurance business" - look at the results of government subsidized flood insurance: thousands of people building along flood plains on the Mississippi and getting flooded on a near annual basis. Who pays for it? You and me.

What we have right now is a credit "crunch" in comparison to the deluge of credit that has flooded the market for a number of years. Cramer's maniacal argument is that if the spigot closes too much due to panic, it could shut off the entire economic engine.

As to the issue of China dropping greenbacks - it's a threat, and it's called the Nuclear Option for a reason: it would hurt China proportionally (perhaps not equally as their domestic growth is phenomenal at the moment). It is not necessarily in China's best interest to get into a financial pissing match with the United States, but like during the Cold War, the option is on the table and that is enough to make *both* sides step back from the brink and talk things over like adults.
posted by tgrundke at 5:56 AM on August 8, 2007


tgrundke: I really cannot abide by anyone who calls Greenspan an idiot. I echo just about everything Ynoxas said about the Greenspan tenure and his ability to successfully navigate some very tricky waters.

The current crisis falls squarely on the shoulders of the lenders (and the buyers!) who offered products to people who, from a simple mathematics point of view, never should have qualified for these products and from buyers who didn't read the fine print carefully enough.


Yes. People often misunderstand the role of Greenspan, George et al. They are macroeconomic managers - their job, to be simplistic about it, is to keep certain indicators (inflation, growth) within desired parameters by pulling certain levers (interest rates, money supply). They operate on a short-term basis, and their role does not encompass eradication of poverty, or avoidance of human misery. It's the keep the indicators at certain levels. They do that job reasonably well. The problems caused by what they do are not their fault per se, they are the result of the structure of economic policy itself, and ideas of what the state can and cannot and should and should not be doing.

Also, as you say tgrundke, a lot of the problem is mis-selling: lenders selling people products they cannot afford. That happens because the regulatory environment allows lenders to do it - they can hardly be blamed for pursuing profit in an basically legal manner, even if what they are doing is repellent. But, tgrundke, although it is tempting to also blame the borrowers of stupidity, I really think that can't be held against them. Often they are victims of pressure-selling, the deals they sign have been misrepresented to them, and they are borrowing in an environment where impartial, free advice is hard to come by and TV ads offering easy money are plentiful. Also, all mortgages are complicated, and involve delicate risk-assessments that many people simply aren't capable of. We can't expect everyone to be savvy enough to select the right deal in these conditions, and the consequences of taking the wrong deal - repossession, loss of all assets, credit-pariah status - are so horrible that I think it's very unfair to say "well, they weren't smart, so they had it coming". The system, at present, not only allows sharks to roll rubes, it encourages the activity to finance growth.
posted by WPW at 6:29 AM on August 8, 2007 [1 favorite]


Some think Cramer is a morale hazard, others think he is a moral hazard.
posted by wallstreet1929 at 6:55 AM on August 8, 2007


...and from buyers who didn't read the fine print carefully enough.
As if the average homebuyer has the wherewithal to read and understand that fine-print. In most transactions, the homebuyer doesn't even see the contracts until the day of signing. And the pressure to hurry-up and sign is enormous. And, even if they did take the time to read every line of tiny type on every piece of paper in the relatively large stack in front of them, it's doubtful they'd understand much, if any, of the legalese and industry-specific terminology. It's utterly illogical to expect homebuyers to have such specific knowledge.

It wouldn't take much effort for the lenders to present a summary sheet outlining EXACTLY what the costs, risks and responsibilities are going to be, in clear, plain english, devoid of said legalese. Never gonna happen, though. They know consumers would never sign if they saw all the gotchas clearly spelled-out. The lenders depend of opaqueness.
The system is rigged against the consumer ever knowing exactly what they're getting into.
posted by Thorzdad at 7:04 AM on August 8, 2007 [2 favorites]


Boosh: Crystal Method ? sounds more like fatboy slim to me.

yeah, it's Fatboy Slim's "Right here, right now".
posted by spish at 7:16 AM on August 8, 2007


So did this Cramer guy ever get yanked for speeding in New England?
posted by ROU_Xenophobe at 7:21 AM on August 8, 2007


Kramer's not kidding though, it is bad, and its getting worse, but to be honest I am glad that Bernanke is staying the course, because if he doesn't stay focused on preserving the dollar, everything else is fucked anyway, and the entire US(probably world) economy will be up shit creek without a paddle. We can get out of a recession, but if inflation takes off at the same time, we're up shit creek for decades.

Hold the line, Ben.
posted by OldReliable at 7:37 AM on August 8, 2007


As if the average homebuyer has the wherewithal to read and understand that fine-print. In most transactions, the homebuyer doesn't even see the contracts until the day of signing. ...It's utterly illogical to expect homebuyers to have such specific knowledge.

That's why we paid a lawyer to review all of the documents for us and attend the closing. He made a few very minor changes but in the end it was a little peace of mind that we bought for the $300.00 or so he billed us. Never buy or sell real estate without a lawyer! Thanks Bruce Williams!
posted by MikeMc at 7:45 AM on August 8, 2007


Giraffe shirt.
posted by fiercecupcake at 8:01 AM on August 8, 2007 [2 favorites]


the iTulip link was nice, though substantially it cleared up damn little for me, I appreciate it's editorial pov.

Oh, and that Cramer guy, Christ, what an asshole.
He has no idea.
posted by From Bklyn at 8:04 AM on August 8, 2007


Thorzdad - unfortunately, I have to disagree with you. Buying a house is a *major* financial transaction and should not be undertaken lightly. Where I think you may have intended to go with your statement (if I may be presumptuous) is that in today's market, we've 'commoditized' real estate to the point where everyone thinks it is as simple as buying a coat at the store.

It just isn't.

There's lots of pressure to buy from car dealers, from rug salesmen, from tree trimmers, from the florist -- but you just have to be smart about it. I agree with MikeMC - having an attorney come along for the signing is a fantastic idea, and I think increasingly people will be doing this, especially for those who were burned in the past (lots of people).

You are correct - real estate documentation is thick, boring and convoluted. Hence why it shouldn't be tossed into the lap of every Jane and Joe who has a pulse, and why said Jane and Joe should know when they're over their heads. If you don't understand the terms and language, it's your responsibility to ask - it's like at the jewelry store: if it's behind the counter, it's probably too expensive for you to buy it, so you better ask good questions about it and bring a big checkbook.

I understand what you are saying about pressure sales and whatnot - however, I simply cannot believe that gives the consumer a free ride in this whole fiasco.
posted by tgrundke at 8:06 AM on August 8, 2007


First of all, Cramer is not to be taken seriously ever.

The housing crisis is a problem, but not for most of us. It is a problem for

(1) home speculators, e.g. Casey Serin. Die.
(2) real estate agents - sorry, you guys might actually have to learn how to negotiate now.
(3) homebuilders and construction workers. You didn't think it was going to be 2003 forever, did you?
(3) those crappy mortgage companies that sent me junk mail masquerading as checks for $660,000. Die.
(4) hedge funds. Die.
(5) REITs. Die.

It will NOT be a problem for people whose ARMs get jacked way up and can't afford the payments because I GUARANTEE you that the government steps in and bails you out. The question is not whether these people get bailed out, it is certain that they will.

The question is whether the Fed is going to bail out the brokers who own the hedge funds, and the fed basically told them yesterday to get bent. Which I applaud. A rate cut is not only moronic, it would be negligent.

This brings me to dumb Cramer's rant. Oh boo the brokers are feeling the pain. Didn't these guys make multi-million dollar bonues last year. Aren't these guys bitching that Barack Obama wants to tax private equity and hedge fund managers earnings as income? And now they want the Fed to bail them out?

Doesn't Cramer's buddy Larry Kudlow end his shitty show every day with "Free market capitalism is the best path to prosperity"? Fuck you. The bullet goes in the gun, and the gun goes in your mouth.

Capitalism is these guys getting burned. Bailing them out is corporatism.

The reason the markets are getting smashed is because the fast money liquidity is drying up, and hedge funds are selling everything from everywhere, Europe, Asia, etc. to make their margin calls. The fast money here is the private equity firms and hedge funds that provide the daily volatility. The leviathan slow money is mutual funds, and that money isn't going anywhere.

Blackstone went public at the peak of the private equity 'fad', for lack of a better term. They made their money for decades, and sold it to you right at the top.

This is not 1990, and it is certainly not 2000. Google is trading at 40 times earnings. For a high growth company, that's just about right. But you rank the sectors, and it's energy and mining that is on top. It's not high spec that's driving the market, it's industrial growth. It's energy, mining, raw materials, industrial equipment. It's FCX, not PETS. Copper, not dotcom.

You want to make money? Don't buy Crocs or underarmor, both cramer faves. Buy Union Pacific. Buy Boeing. Figure out who is the world's largest producer of molybdenum and buy them (Hint: it's FCX). Buy copper. Buy oil. Whether you believe in peak oil theory or not, it's not like 3 billion indians and chinese are going to live an energy and plastics free lifestyle. Ten years from now, assuming India and China achieve the same level of industrialization as Portugal, you'll be nicely ahead.

Cramer appeals to college students and twenty somethings who don't have experience with any kind of long term anything. It's hard to convince someone to just hold a stock for ten years when ten years ago they were eleven and playing Sonic until their eyes bled.

God, how I wish Wall Street Week was still around.
posted by Pastabagel at 8:12 AM on August 8, 2007 [18 favorites]


One thing I want to make clear, and I'm thankful noone called me on it, was when I posted this:

Ynoxas
B.S. Economics, '96
PhD dropout (for good reason), '98


I was posting that as response to the mention of Malor's statement of Economics being the "dismal science".

It was not meant to be any sort of bizarre appeal to authority, it was supposed to be just a wry response and a bit self-deprecating.
posted by Ynoxas at 8:18 AM on August 8, 2007


I fully agree with what Thorzdad is saying about the average home buyer understanding that fine-print.
I, being an average joe, don't know too much about economics.
Everyone around me seems to think they do, however - and they have no problem telling me what I'm supposed to be doing.

When I was still in school - IN SCHOOL - people were telling me that I was stupid to not borrow money to invest in high tech stocks.
This was several months before the bubble burst.
After that, nobody can conceive of ever giving such ridiculous advice - but I remember getting it.
(not that I was smart and saw it coming, I just couldn't conceive of borrowing more money when I was already up to my eyeballs in debt.)

Anyways, I think about that advice a lot. What did these people have to gain by advising someone in such a vulnerable position to do something that seemed in retrospect so clearly misguided?
Was it goodwill? Malice?
Or - was it just an unconscious drive to persuade other people to make the same choices that they themselves have made?

I have yet to meet a homeowner that does not allude to my stupidity for renting rather than buying - even though I cannot afford mortgage payments yet.

It's these people that influence people like me to enter into situations without understanding the fine print.
These are friends, and family, and people I've only just met.
I don't personally have the contextual experience to understand what "acceptable risks" are... so even if someone very clearly explains the fine print to me, they still have a lot of wiggle room to influence me through any caution signs that might raise.

People trying to sell me something - I "get" why they would try to minimize the perceived risks, and maximize the perceived rewards.
My best friend, upon just buying a house, telling me in insulting "it's time to grow up, now" tones why I should buy as well, I don't "get". (especially when that friend later complains about being house-poor)

So, who do choose to help me understand? An expert? (and don't they have something to gain by influencing me?)
Or a friend? (who has nothing to gain, but will still probably influence me anyway?)

Speaking as a average joe, I feel completely lost in an ocean of what is potentially bad financial advice, and not a lot of people I can trust to help my best interest.

(Since we're gonna lay an equal share of the blame for this at the feet of people like me, I figured I might as well say my piece.)
posted by Tbola at 8:20 AM on August 8, 2007 [5 favorites]


Pastabagel - I agree with you on many of your points, but the problem is that the housing market has the potential to feed into just about every other sector of the economy, mainly because consumers have been using their homes as ATMs for so many years now.

With credit tightening, rates increasing and standards (gasp!) being raised beyond the "have a pulse? here's a loan!" method of conducting business, the consumer engine has the very real potential of crashing to a halt.

So yes, it is a big problem for the whole economy since housing has been a primary source of credit for millions of homeowners. Need a new car? Tap into that home equity! Need a new roof? Don't pay cash - tap into home equity! Want a vacation? Home equity! College bills? Home equity!

Home equity is disappearing quickly - which means: the ATM is running empty.
posted by tgrundke at 8:22 AM on August 8, 2007


MikeMc: Spot on. Signing something as legalese dense as a mortgage without having your own lawyer eyeball it is asking for trouble. And don't rely on the closing attorney to look after your interests...that's not what they are there for.

As an aside: I recently bought a house. The banker that got my mortgage business started off the discussion of financing options with "I sense that you're not dumb enough to want an ARM". Nice.
posted by kjs3 at 8:24 AM on August 8, 2007


you that the government steps in and bails you out

We've added $6T in mortgage debt since 2000. That's too big to bail. Thanks Norquist!

The present housing market reminds me of those guys who tie weather balloons to a lawn chair and shoot them out to come back down.

In 2001-2003 the PTB for whatever reason tied about 20 balloons on, and prices rose accordingly. Now they're sitting and plinking the balloons that got us here:

2/28: POP!
Piggyback/No Down: POP!
Stated Income: POP!
Neg-Amortizing loans: POP!
Non-owner occupied: POP!
Subprime: POP!
Alt-A POP!

Where I live, the biggest balloon was the first one, dotcom money. There's still enough air in this one to keep Peninsula prices stable, if not going up.
posted by Heywood Mogroot at 8:37 AM on August 8, 2007 [1 favorite]


I think what will happen (re: ARM loans) is that the government will offer a program to back banks who are willing to offer low-cost or no-cost conversions to fixed rates.

I'm already starting to see offers pop up for all kinds of deals such as this. Of course, you'll be refinancing at a higher rate (most of the ARMs resetting right now were at between 2 - 4%), but by allowing people to refinance into a fixed 6.5 - 7.5% mortgage you'll be saving a *lot* of loans from default, but definitely not the worst of them.

The jumbo-mortgages will still be toast, but for the millions of sub-$250,000 loans, this will come as a saving grace.
posted by tgrundke at 8:42 AM on August 8, 2007


TBOLA - I think you hit on a bigger, macro-issue here: information overload. In a world where everyone considers themselves an expert, and we've devalued the worth of the few, true experts out there, it's so difficult to discern good advice from bad.

I, too, heard many of the same things from people: don't rent, buy, etc. Being a homeowner for two years on now in a very affordable market (Northeast Ohio), I feel as though had I continued to rent, I would be in a better financial position than I am now. I like owning my home, but it definitely takes a lot of time, money and effort. I would say that owning a home is *not* an asset, it is a *liability* until the day you sell it.

Back on the topic I mentioned above, good info is becoming much harder to come by. People think Cramer is a financial guru, but I have to agree with everyone else here: run from his advice. As soon as Cramer has picked a stock it means that stock has or soon will peak.
posted by tgrundke at 8:46 AM on August 8, 2007 [2 favorites]


We've added $6T in mortgage debt since 2000. That's too big to bail.

You don't bailout everyone. You bail out the people who are going to be thrown out on the street. If you assume ever subprime mortgage goes into foreclosure, that's 4% of mortgages. And by "bail out" I didn't mean buy up their debt. The government can offer it's own low rate mortgage priced somewhere between loans current principal and the homes foreclosure price.

Some people will lose money. Speculators, their lenders, the funds that bought up those crappy loans. But so what? That's the nature of risk.

And of course it will slow the economy down. The economy was supposed to grind to a halt after 2000, and the housing bubble let everyone live on borrowed time. So its slows down to where it should have been before. That's not a disaster.

Most people didn't play shell games with their houses just like most people didn't put their retirement funds in dotcom stocks and Enron.
posted by Pastabagel at 8:58 AM on August 8, 2007


My favorite part of this is when he pounds the table and screams "My people are losing their jobs!" Your people? You mean hedge fund managers? Like the Bear Sterns president that was just ousted for taking a bath on risky subprime securities who made $37 million last year? Oh that guy. Let's hope he has a little something in the Christmas fund to get him over the hump. Screw you, Cramer.
posted by Heminator at 9:02 AM on August 8, 2007 [3 favorites]


What's bullshit is what's happened to International stocks. I have my retirement in overseas funds, and still got burned. The stocks dropped to where they were in April or so. So ridiculous.

Of course! Correlation goes up as stocks go down.

(see King and Wadhwani (1990), Lin, Engle, and Ito (1994), Longin and Solnik (1995), Karolyi and Stulz (1996), Solnik, Boucrelle, and Fur (1996), Ramchand and Susmel (1998), Chesnay and Jondeau (2001), Ang and Bekaert (2002), Dennis, Mayhew, and Stivers (2005), Baele (2005), Silvennoinen and Teräsvirta (2005))

That's some Investing 101 shit, right there.
posted by Kwantsar at 9:13 AM on August 8, 2007


From Kwantsar's link, "correlation is more pronounced when the world market index is trending down" and "mutual correlations tend to increase when volatility is high"

Translation: If everyone is nervous and somebody panics, then everybody panics.
posted by Pastabagel at 9:22 AM on August 8, 2007


Oh, and just to deomstrate how wrong Cramer usually is: his rant was initially about how bad things were at Bear Stearns. The charts in that clip show BSC at around 113. As I write this, BSC is at 121, up 3.8% today alone.

Had you bought Bear Stearns the moment Cramer proclaimed that "Armageddon is here", you would have made 7%.
posted by Pastabagel at 9:29 AM on August 8, 2007


You bail out the people who are going to be thrown out on the street

So you give them money to make their mortgage? Does this work for renters, too? I think my rent is too high right now, and I'm getting tired of paying it every month.

I'm not quite following what this "bailout" thing entails, obviously.

The true scope of the problem is IMO at least 10% of the mortgages since 2000, or $600B [at $300k per that's just 2 million borrowers . . . it's really probably over a trillion we're looking at here].

Clinton's $1B plan is a joke and a half. Feel free to hand out band-aids like that, but there's no real fix for this but a massive dose of reality.
posted by Heywood Mogroot at 9:29 AM on August 8, 2007


he's talking about ARMageddon, as in adjustable rate mortgage ageddon. And that is here.
posted by OldReliable at 9:34 AM on August 8, 2007


So here is the impression I get from reading this thread. Bear in mind that I have no understanding of wall street whatsoever.

Basically Cramer is a guy who made a ton of money and connections on Wall Street. Now he goes on tv to give market advice because he's a really animated guy and does a good job of sounding like he knows what he's talking about. And he probably DOES know what he's talking about, but he's not really giving great advice out on the air unless you're one of his buddies on Wall Street. Those guys really do well when small investors listen to him, because they make money off of those investors. But a lot of those small investors get it in the shorts so that Cramer's buddies don't have to. Am I getting this right?

I can only imagine that, if I am understanding this correctly, the only reason Cramer has any credibility anymore is because his legion of Wall Street connections go around whispering about what a great show he's got to everyone they know in order to bolster that credibility for as long as they can get away with it.

Please let me know where I'm misunderstanding things.
posted by shmegegge at 9:36 AM on August 8, 2007


Capitalism is these guys getting burned. Bailing them out is corporatism.

Man, I'm with you, there. The thing that gets me, though, is our President and our weak-ass Congress. Time and again, who do they tend to bail out? The little guys with the ARMs or the fat cat brokers crying over their gajillion dollar pay cuts?

Sadly, I think we know the answer. They've already been busy setting us up the bomb with their anti-bankruptcy laws, et al.
posted by fungible at 9:37 AM on August 8, 2007


God, how I wish Wall Street Week was still around.

Man, I was just thinking about how I missed old Louis Rukeyser. I remember the scathing editorial he delivered on the post-9-11 panic (which he described as a "fat cat frenzy") - now THAT was a rant, and delivered at a normal volume even.

It seems possible to me, though, that nobody really knows what the fuck is going to happen with the economy.
posted by nanojath at 9:40 AM on August 8, 2007


I enjoy watching Cramer sometimes. He seems like a smart engaging guy, and I like watching him work. It's just theater though. I watch it once or twice a month.

I would never take any of his advice (individual securities are too risky for my tastes anyway) and would be interested in seeing more data on how his advice works.

But when watching his show I'm struck by how many of his callers say they're new to investing. Obviously we don't know if that's representative of callers or watchers overall, but wow, does that seem like a bad idea.
posted by These Premises Are Alarmed at 9:45 AM on August 8, 2007


And he probably DOES know what he's talking about, but he's not really giving great advice out on the air unless you're one of his buddies on Wall Street.

You can be one of his buddies. If you pay him about $50 a month ($600 per year), you get to see the trades he is going to make for his own portfolio before he makes them. If you subscribe to Realmoney.com (about $420/year) you get to exclusive access to sage advice such as "google goes to $550" and other hot recommendations for stock he does not own and will not be buying.

For free, you get access to thestreet.com, where you get great options trading recommendations from Lenny Dykstra (yes, the ball player) and insider tips such as "Highest-Yielding Schwarzenegger Stocks". You also get to read about Cramer's new website stockpickr.com in every single dumb article.

Or you could watch his TV show and listen to him tell you to buy General Dynamics and then have it fall two points.

Or, you could pick up "Confessions of a Street Addict", where he describes how he nearly ruined the hedge fund he was managing until his wife, ex-Goldman trader and then homemaker, came into his office on October 8, 1998, took over the desk, and bailed him out.

Jim Cramer graduated Harvard as a staunch pro-Lenin leftist. He wanted to be a journalist. He went to work on Wall Street and is worth an estimated $50-$100 million. I wouldn't trust a word that came out of his mouth.
posted by Pastabagel at 10:08 AM on August 8, 2007


Ynoxas says: But Greenspan presided over the longest economic expansion in American history. He carried America through some scary times. His sole focus was on containing inflation, even when there was very little inflationary pressure, to the great consternation to most people on the Street. Meanwhile rampant inflation was all across the globe throughout the 1990's.

He did it by printing too much money. Every time we had a crisis, he laid on the paper. This is a lot like using methamphetamine for personal productivity. It works extremely well. For awhile.

It's not working so well anymore.

Here's a clue: a good central banker is pretty much universally despised. His job is to take away the punchbowl every time the party gets started. Booms are terrible for an economy; they breed waste and corruption, while feeling great. Greenspan only allowed two outcomes: boom and slightly less boom.

After twenty-five years of that, we're in a very serious mess.
posted by Malor at 10:22 AM on August 8, 2007 [1 favorite]


Cramer's on-air personality is a pretty good representation of what the mentality in the pits really is like. Having spent a few years in that business myself, I've often thought that if more people really knew how much capital is in the hands of such knee-jerk post-adolescent yahoos on a daily basis, they'd keep their money in their mattresses.

It seems possible to me, though, that nobody really knows what the fuck is going to happen with the economy.

Is that not the very nature of economics? It does well to explain historical trends and events, but it's never been a good tool for predicting market behavior. I'll wager that Dionne Warwick could do a better job on that front than Jim Cramer.

Booms are terrible for an economy; they breed waste and corruption, while feeling great.

I'd never thought of this before, but it sounds sensible to me. Maybe the Fed Chairman is in the pocket of the military-industrial cabal. You have to give some people a taste of the good life (and produce some meaningful pop-cultural anecdotes) to keep them from revolting.
posted by psmealey at 10:50 AM on August 8, 2007


that's why I love this place, I learn so much from you guys.....
posted by brneyedgrl at 11:06 AM on August 8, 2007 [1 favorite]


Oh, and pastabagel, subprime is not 4% of mortgages, but more like 30%. And this purchase money graph from the WSJ says there will is about $2T of subprime on the books that has been loaned from 2004-now.

This is not even counting the Alt-A (stated income) bookings, which is about the same amount of debt holdings.
posted by Heywood Mogroot at 11:15 AM on August 8, 2007


graph
posted by Heywood Mogroot at 11:16 AM on August 8, 2007


the underlying question is very simple though the mechanism is absurdly complex: what is credit? ultimately, credit = faith in the marketplace. from a macro-perspective individual credit losses are "insured" by overall credit wins. in other words, DESPITE the credit crunch, winners still outnumber losers. therefore, what has been insidiously called a 'bubble' over and over is, in actuality, simply an extension of a self-perpetuating cycle of wealth initiated by liquid assets. the sub-prime market is simply an example of an inflation of the "real amount of liquid assets" available - if too many bad faith transactions have been made, the market will simply correct and purge itself of the distortion of true assets. obviously, this is a cyclical historical pattern. what IS miraculous, however, is how many NEW liquid assets have been created in the past twenty years . . . that is, how many overall 'winners' have been created and therefore, more true capitol assets in the marketplace. this net increase is the only important long-term factor.
posted by huckhound at 12:35 PM on August 8, 2007


I still wish I'd bought a house in 2000.
posted by bonaldi at 12:35 PM on August 8, 2007


Huckhound, you're confusing wealth and currency. At its most basic, wealth is STUFF, real physical stuff you can touch. It's generated through unconsumed production...manufacturing.

Modern currency is not wealth: it costs nothing to make. It's a claim on future assets, not an asset itself. The ever-growing supply of liquidity, which you cheer so enthusiastically, has nothing to do with wealth. It is, instead, inflation, where more and more currency chases the real stuff in the world. It feels great, but it's corrosive and terrible to the economy.

There have been no miracles over the last twenty years, just lots of money printing. The underlying economy is not particularly strong; the things that actually generate wealth have largely gone overseas.

It may feel miraculous to you now, but in ten years, you'll wonder how you could have possibly said that.
posted by Malor at 1:25 PM on August 8, 2007 [1 favorite]


It is, instead, inflation

oh, liquidity gets converted into wealth easily enough for those who get their hands on it first. . . just don't be looking for a chair when the music stops . . .

I didn't particularly get, at the time, what was pulling the economy forward 2002-2005. Deficit spending, while substantial, wasn't that great. Seeing the various MEW charts of that timeperiod was the red pill that opened my eyes to what was going on. Bravo, Greenspan, bravo.
posted by Heywood Mogroot at 2:13 PM on August 8, 2007 [1 favorite]


I feel like i'm late to the party. Anyawy, that video was awesome.
posted by chunking express at 3:24 PM on August 8, 2007


Also, I am constantly amazed at how willing people are to eat the horseshit that is free market capitalism. No doubt the only issue here is that the market isn't "free" enough.
posted by chunking express at 3:56 PM on August 8, 2007


Or, you could pick up "Confessions of a Street Addict", where he describes how he nearly ruined the hedge fund he was managing

This is a very interesting book, especially since it predates most of his "fame" on CNBC, like Mad Money. Also, it talks a lot about market manipulation by hedge funds, which he got a lot of heat for when he repeated the same basic thing in a video in the last year.
posted by smackfu at 4:04 PM on August 8, 2007


chunking, oddly, in some ways, that's correct. We're doing exactly the wrong thing as is... we're not regulating it AND we're protecting fools from failure.

In other words, we're not meddling where we need to, and we ARE meddling where we most emphatically should not.

We couldn't screw it up worse if we tried.
posted by Malor at 4:23 PM on August 8, 2007


TBOLA said: "So, who do I choose to help me understand? An expert?"

A real dilemma for sure. What I recommend (as an occasional investment consultant) to people who are new to investing and Wall street is to pick up a couple of good books. One that belongs on everyone's bookshelf is "A random walk down Wall Street". I'd also recommend Galbraith's "The Great Crash" or his "Short History of Financial Euphoria" to understand the dynamics of bubbles.

During a mania or speculative episode like the dot-com or the current real-estate bubble, the worst thing to do is to listen to friends, neighbours and any paid-by-commission financial salesperson.
posted by storybored at 6:47 PM on August 8, 2007 [2 favorites]


Oh, and pastabagel, subprime is not 4% of mortgages, but more like 30%. And this purchase money graph from the WSJ says there will is about $2T of subprime on the books that has been loaned from 2004-now.

This is not even counting the Alt-A (stated income) bookings, which is about the same amount of debt holdings.
posted by Heywood Mogroot at 2:15 PM on August 8


You're right, my comment was written poorly. While 20-25% of mortgages are sub-prime, only about 10-20% are delinquent, according to this article on wikipedia that has decent sources for most of its data.

Using quick arithmetic, 20% of 20% is 4% of total mortgages that are in trouble, assuming all those that are delinquent actually default. That's where I came up with that number.

For alt-a, that same article says that Alt-A is 6%, with 2.6% delinquent as of Jan 07, which is .18% of total mortgages.
posted by Pastabagel at 6:57 PM on August 8, 2007


His sole focus was on containing inflation, even when there was very little inflationary pressure, to the great consternation to most people on the Street. Meanwhile rampant inflation was all across the globe throughout the 1990's.

He did it by printing too much money. Every time we had a crisis, he laid on the paper. This is a lot like using methamphetamine for personal productivity. It works extremely well. For awhile.


You're saying the best way to contain inflation is by increasing the money supply?? What?

The American economy, on the whole, does not have an inflationary problem, and hasn't in 20 years. The last 15 have been damn nearly placid.

The housing market has an inflationary problem, spurred by greater access to lending by the lenders, encouraging heavy activity in the market for non-primary-domicile homes.

In 2006, almost 40% of home sales were for second homes!!!

That is lunacy.

Noone can say the warning signs weren't there. The people who got caught holding 2 or 3 properties in overheated markets, it is hard to muster much pity for them.
posted by Ynoxas at 7:01 PM on August 8, 2007


Ynoxas, what do you think house prices are if not inflation? Inflation has been going up like a rocket in most things we can't buy overseas. Healthcare, cable tv, services, food, energy... virtually everything that's done locally has gotten dramatically more expensive. Stock prices were the original beneficiaries of the excess capital, but it moved into real estate and debt.

We've had two powerfully competing drives for the last 15 years; the inflation of the Fed, and the deflation of all those Chinese and Indian workers coming online for the next closest thing to free, with a powerful appetite to hold the only currency they knew to trust, US dollars. (the poor fools).

If you dig into the government figures for inflation, they're outright lying most of the time. Anytime numbers go up in a way they don't like, they find some way to not count it, but anytime numbers go down, somehow that makes it into the final figures. This happens over and over, but because they bury it in lots of complex-sounding "economic adjustments", people buy it.

They've somehow managed to convince people to watch the number "ex food and energy" -- but food and energy are the only inflation that really counts! Nearly all other purchases can be put off, particularly capital goods, but food and energy has to be bought right now. That's the inflation that really hurts people, and THAT is where you should be looking for your inflation numbers. (and, not coincidentally, food and energy are much higher than they were even a few years ago.)

You can muse about the joys of low inflation the next time you fill your $35K car with $3/gallon gasoline, off to buy your $10/lb steaks.
posted by Malor at 7:46 PM on August 8, 2007 [2 favorites]


Pastabagel, you're operating with last year's numbers, while the Pain Train is still up ahead.

Half of Alt-A over 2003-2006 was stated income BS. With the tide going out, we're going to be seeing how many people were swimming naked.

I'm relatively confident that my $600B+ estimate of bad mortgages (over the remainder of this decade) is going to be more on the mark than your .18% number.

You assert the feds have a role in keeping people in their mortgages. We'll see how this flies compared to "jingle-mail" if/when rents drive home prices down to pre-2004 levels.
posted by Heywood Mogroot at 9:12 PM on August 8, 2007


"...they bury it in lots of complex-sounding "economic adjustments", people buy it."

Hedonic Adjustments,a polite academics phrase for outright lying.

Most people accept these adjustments at face value as there isn't a lot of information out there explaining just what's really going on. At least not in the mainstream media; I've seen academic papers from time to time, and not all favourable to the idea. The governments response to criticism of these adjustments is that they don't always lower the rate of inflation, but I haven't read of anybody accepting this explanation.

The official rates of inflation, at least in the two markets I look at, US & UK, make sense only if you don't eat or drive a car or hold a mortgage. Not my original words, I'd be inclined to attribute to Buffett however I can't google up a definitive citation....

I believe the government understates inflation by 10% or so; an annual rate of about 13% feels "about right" in the UK, just by looking at my personal operating budget and comparing YOY.

Finally, let's not forget the US Government stopped reporting M3 in late 2005. I've seen papers where people have tried to reconstitute this metric based on information still available, and they believe the US money supply is expanding at about a 15% rate per annum.

Such rapid growth again corroborates the sharp increases we've seen in almost every asset market. Generally when values increase in one (be it US equities, houses, metals, commodities, etc) we observe declines others. These are very unusual times indeed.
posted by Mutant at 11:32 PM on August 8, 2007 [1 favorite]


So, today, (wsj economics blog) the European Central Bank and the Federal Reserve both started "injecting liquidity into the markets" to "calm jittery markets".

I don't know about you guys but I'm pretty sure the only ability the ECB and the Fed have to "inject liquidity into the markets" is by making more and easier loans to the banks they loan to, i.e., making currency more accessible, i.e., cheapening the dollar.

So... inflation continues to go up, the US economy continues to fuck itself, the USD continues to go down, and the Fed's putting cash into the system in emergency efforts.

... This a day after they say everything is fine and it'll all sort itself out. No big deal.

I am waiting for the big crunching noise.
posted by blacklite at 10:16 AM on August 9, 2007


Adding cash was guaranteed; it's what the Fed ALWAYS does whenever things look even a little shaky.

Another snort of meth for America.
posted by Malor at 1:09 PM on August 9, 2007


The Psychology of Subprime Mortgages
posted by homunculus at 1:21 PM on August 9, 2007


God I love it when capitalists scream and cry like big entitled babies expecting to be saved by big daddy government who "doesn't know what's going on out there"!! The irony is sweet. I hope he loses half of that $100 million. Dumbass greedy suckers.

Dow now down 387.18 (4:25 PM EST)
posted by Skygazer at 1:25 PM on August 9, 2007


10%? Really? You think the federal reserve is lying by a factor of 5 on the single most-watched statistic in the world? I mean I have no doubt whatsoever that the Fed massages the numbers, and that watching 'Core' CPI alone is misleading, and that hedonic adjustments are probably bull, but five times? I mean the CPI and PPI have a lot of room to fudge, you can modify the basket and do hedonics until you're blue in the face, but the GDP Deflator or GDP per capita are harder to fudge.
posted by Skorgu at 3:12 PM on August 9, 2007


Subprime is an issue, but it's not the issue. Of itself it's nowhere near enough to break the market. What is enough is a spread from subprime into a contagion of other credit / credit derivative markets, and that is what's proved so interesting / alarming about the past few months. Will it or won't it?

There have been multiple distress signals from credit markets, hedge funds and mortgage providers in recent times. All par for the course. However, this morning we saw the london interbank market effectively cease to function. This is the marketplace where banks source their daily funding requirements for ongoing operations.
Interbank liquidity is, absent a black swan every five years or so, a given. The sun rises and sets, the banks lend and borrow. But not today. What these banks were saying was, in effect, "I don't trust any of these other banks enough to give them any cash at 4%pa overnight, because I'm not sure I'll get it back".

Think about that for a minute. I'm pretty sure most of you have your cash sitting at those same banks earning a paltry rate of interest, and I'm pretty sure most of you think it's safe. Well, this morning, following bnp paribas' revelations, the banks weren't so sure. The ECB then had to step in and guarantee any and all funding requirements for the day. About US$120bn all up. They've never had to make this guarantee before.

As a contrast, on 9/11 (the last time a similar operation was engaged) they injected around US$95bn. Without Government intervention, the European banking system may have shut down this morning - or at least operated in a half-arsed illiquid take-it-or-leave-it fashion. In other words, the market 'failed' (to free-market capitalists, the market was doing what it should do, simply re-pricing credit to make it more expensive given all the prevailing uncertainty / risk).

Does all this mean the world's gonna end? Not necessarily. The US Fed, in contrast, added $24bn, net $10bn this morning. Maybe double normal. On 9/11 they added roughly $200bn. So today was no big deal Stateside. Of course the S&P500 may not have agreed, and tomorrow is another day ...

So: Right now there's a lot of apprehensive traders and prudent risk managers and an inappropriately large number of rumsfeld's unknown unknowns out there. The central banks played failsafe / backstop exactly as the system intended. All we've got for sure is a market that's spooked and running on fear. The danger is that, absent a circuit-breaker - say the Fed lowering interest rates 50bp by end October - is that the fear will lead to a vapourlock and total absence of liquidity in the marketplace. What did Enron in - and LTCM - was not just their leverage, and not just their wrongheaded underwater positions. It was the refusal of their counterparties to allow them any further credit - in effect, asking them to pony up and cover their outstanding debts before they would do any further business with them. Given they were leveraged to the gills, this was of course impossible, and under they went. So what, you ask? Well, unfortunately for all of us the banks operate under a fractional reserve banking system. Just because Cramer's on the excitable side doesn't make him wrong. For the record, though, the central banks' actions to date have been commendable.

Most commentators are spot on in noting the IB's self-interest. The pressure that's being bought to bear on the Fed - and in particular Bernancke - is enormous. There's a concerted PR campaign being waged out there to ensure Bernancke understands that if this goes wrong, he will be hung out to dry by Wall Street. They're after reassurance that the 'Greenspan put' is still alive and kicking ... it's understandable that there's some anger at the 'too big to fail' notion for the financial system, but a word of caution to those above wanting to pull the financial system down around their ears: be careful what you wish for. You may just get ten-fifteen years of tough times in which to work through your schadenfreude.

I won't continue to bore you with detail, but for now all you need to know is:
(1) IB's and hedge funds are holding a pile of toxic / junk credit that no-one can sensibly value;
(2) No-one wants to have this credit sensibly valued, because doing so would lead to massive writedowns / losses across the board. If you don't value it, there are no losses. The wonders of mark-to-market, a la Enron;
(3) No-one, at present, aside from the occasional side deal (Citadel/Sowood) is willing to buy this credit at any price (meaning in effect its value is zero in the current marketplace). The holders of this credit are refusing to accept this as reasonable and believe that eventually 'normality' will return. This concerns me, because it may not.
(4) There is an extensive OTC market in credit derivatives (CDO's, CLO's etc etc) that are priced and traded based on the underlying debt. As the underlying debt cannot be valued, neither can the derivatives. Just how big the losses are in these instruments, and who bears the bulk of these losses, is the big guessing game for now. Its a tangled web that the IB's don't really want to unravel - mainly because they're not sure what they'll find. Sometimes pulling on a single thread can unravel the whole jumper ...
(5) The market could, in its current frame of mind, run to a place where the Fed is forced to bail them out (beyond supplying repo / discount window liquidity, they may have to cut the overnight rate. FYI, the Fed Funds and Eurodollar futures have already priced in the assumption that this will happen. As is typical with markets, they've priced in the endgame well before the whistle is blown.

How this ends up, no-one knows. I'm not a big fan of making sweeping public predictions about market direction, as there's little upside in doing so. We could be back in happyland in three months, or we could spiral into something far more sinister. But there's enough historical synchronies with the current environment to make me wanna pull out my beat-up ol' copy of The Grapes of Wrath and get to reading ...*

*Excuse the length. I just got to typing, and now here I am.
posted by bookie at 7:39 PM on August 9, 2007 [106 favorites]


bookie, what an awesome post. You did a much better job than I did in communicating the risks and problems here.

I'm not sure if even you realize, though, just how precarious the whole system is: it's my belief that some kind of meltdown is absolutely inevitable, because the present way of doing things is not sustainable.

The fundamental Law 0 of economics: things that can't go on forever, don't. So it's gonna stop someday, but we have no exit strategy; there doesn't appear to be any way to unwind the bad credit without the system freezing up. We're hooked on perpetually more debt and new securitizations. As I so often say, we're junkies, and there's no good way to come down off this high.

Keynes, of course, also pointed out that markets can remain irrational longer than you can remain solvent. There's no guarantee the crash happens now or ten years from now, but it has to crash, IMO, because it's been backed into a corner. There's no other way out.

If it has to crash, I'd rather it do it now than later; the longer the present stupidity maintains itself, the more damage will be done to the economies of the world. We're already going to lose at least two decades of growth; if we don't contain it soon, it could be much worse.
posted by Malor at 7:53 PM on August 9, 2007


I would of course pick this time of all times to get pretty interested in doing serious trading... great summary, bookie, thanks.
posted by blacklite at 9:06 PM on August 9, 2007


bookie - well said, impressively so. thanks for taking the time to write that.
posted by spish at 9:12 PM on August 9, 2007


"10%? Really? You think the federal reserve is lying by a factor of 5 on the single most-watched statistic in the world? I mean I have no doubt whatsoever that the Fed massages the numbers, and that watching 'Core' CPI alone is misleading, and that hedonic adjustments are probably bull, but five times?"

Yes I do. I run my own household budget and track stuff pretty closely. So 10% feels about right. For me. Others will, of course, have different views about what feels right.

Keep in mind both the US and UK government have huge obligations tied to the reported rate of inflation. Even if they can under report by 100 basis points for six months the savings are enormous.
posted by Mutant at 12:59 AM on August 10, 2007


DoomFilter
posted by psmealey at 6:01 AM on August 10, 2007


Maybe I shouldn't buy that house just yet.
posted by bonaldi at 6:12 AM on August 10, 2007


If you can get a reasonable value for a good place in a decent area, as well as lock in a good rate and affordable payment for 30 years, why not, Bonaldi? I'm probably looking to far into your comment, but that is precisely the thing I hate about these threads:

a. They stress people out.
b. Apart from being prudent with your spending and investing, there's NOTHING you can do about it.
c. Despite the terrific knowledge and insight above, not even the best and brightest economists of the day knows what is going to happen next. No one does.

Not that this isn't a worthwhile topic of conversation, but seriously, apart from B... what can you do?
posted by psmealey at 6:18 AM on August 10, 2007 [1 favorite]


I've just asked that very thing on ask psmealy. I suppose one fear is that I get a three-year rate and emerge from it to 17% interest, which would kill me.
posted by bonaldi at 6:27 AM on August 10, 2007


Well, then don't get a three year rate.
posted by smackfu at 6:49 AM on August 10, 2007


I don't think I can get any longer!
posted by bonaldi at 6:59 AM on August 10, 2007


Maybe I shouldn't buy that house just yet.

don't get a house as an investment, get it as a place to live ... get a fixed rate mortgage ... and if the time doesn't seem right, remember that 5 or 10 years from now, we're still going to have houses
posted by pyramid termite at 8:32 AM on August 10, 2007


better get a couple guns to go with that house.
posted by mrgrimm at 3:22 PM on August 10, 2007


"Yes I do. I run my own household budget and track stuff pretty closely.

* Council tax - up about 18% YOY.
* Energy costs - about 30% YOY.
* Food - depends, honey, for example, up about 12% YOY.
* Vegtebles, not so much across the board although trending up due to higher energy costs
* My mortgage is actually less as I refinanced and I'm fixed but others may be feeling some pain "


Mutant, my numbers (yay for Quicken) agree with yours pretty closely, though my energy numbers are more obscure as my electric, gas, heat and hot water bills are included in my rent. I'm showing about a 14% increase in essential expenses YOY, with the largest percentage jumps in groceries, household supplies, and fuel costs. Groceries alone are up 32%; I'm now rewriting my grocery list trying to cut back. Looks like more beans & rice in my future, heh.

The published economic statistics are crap.
posted by zoogleplex at 11:35 PM on August 10, 2007


So those of us that are renting right now at well below the going rate, socking money away, and living debt-free, we're going to be OK, right?

And maybe even be able to buy a cheap house to live in after the market collapses?

Or are we fucked, too?

Ynoxas? Buehler? Anybody?
posted by infinitywaltz at 10:32 PM on August 7


funny dat that our handles match our circumstances ;p but jokes aside, I live debt free, almost 800 credit score, socking money away in a rent controlled apartment but I just sent everything but my old pension from working at the Uni days [locked in for 30 years TIAA CREF] to my parents who live in the old country. I figure best case scenario and I over reacted I lose a few bucks on wire transfer charges and currency conversion fees but worst case scenario.... my piddly life savings aren't wiped out and worthless.
posted by infini at 10:04 AM on August 11, 2007


psmealey writes "If you can get a reasonable value for a good place in a decent area, as well as lock in a good rate and affordable payment for 30 years, why not, Bonaldi? "

It's the first part of your statement that is key. I don't know where Bonaldi is but I can't buy a place here that hasn't "appreciated" 50-80% in the last three years. A serious correction is looming and IMO you'd have to be desperate or stupid to buy a capital asset that'll decrease 30% in the next year or so. Especially if you aren't putting 30% down. Cripes on a 300K place the upfront cost savings would be enough to buy an expensive new car for both my wife and I and have cash left over for at least a few weeks someplace warm. The GST savings alone are worth a years taxes.
posted by Mitheral at 6:51 PM on August 11, 2007


A serious correction is looming and IMO you'd have to be desperate or stupid to buy a capital asset that'll decrease 30% in the next year or so.

If you're buying a home with a view of how it will depreciate (or appreciate) over the course of one year, I think you're making a horrible mistake. You should probably stay out the market altogether.

My point was that, in a desirable location, the price of real estate will always trend up due to basic supply/demand disparities. If you can lock in a good rate, can comfortably afford the down payment and tax/mortgage payments, and plan to spend a few years in the place, there's no reason you should be dissuaded from buying it, regardless of the current market situation.
posted by psmealey at 7:30 AM on August 12, 2007


The unstated part here is the other side of the coin. If the whole thing comes crashing down, we're all pretty much fucked. I don't care if you're the stingiest bastard who ever lived, and you keep your cash under your mattress, you're in the same boat as everyone else. So, in my view at least, you might as well continue to live your life and act within the bounds of reasonableness.
posted by psmealey at 7:40 AM on August 12, 2007


Sure, for someone who buys a house and lives there for 30 years the inflated price they bought their house for doesn't matter (except for all the disposable income it sopped up). However most people move houses more often than once every 30 years.

Let's take Vancouver and 1981 as an example. If you bought in the first quarter of 81 you paid ~40% more than someone who bought 16 months later. You wouldn't be able to sell your house for what you paid for it for nine years and you still would have lost money in real terms. A person who bought in 83 had their house immediately gain in price and they have a much lower down and monthly payments. Our 83 buyer can sell at anytime if their life circumstances change. Our 81 buyer would be forced to sell short for _years_ unless they'd had an atypically large down payment.
posted by Mitheral at 10:43 AM on August 12, 2007


My point was that, in a desirable location, the price of real estate will always trend up due to basic supply/demand disparities. If you can lock in a good rate, can comfortably afford the down payment and tax/mortgage payments, and plan to spend a few years in the place, there's no reason you should be dissuaded from buying it, regardless of the current market situation.

You ignore the opportunity cost of placing that down payment elsewhere. This was linked before. It's still relevant.
posted by Kwantsar at 11:41 AM on August 12, 2007


NYMag article in which Jim Cramer tries to scare the bejesus out of everyone and anyone, so that big daddy government will bail out reckless, greedy, short sighted millionaires and billionaires like himself.

Thousands of miles from where the walls began tumbling down, New York, the town where the architects of card houses live, will soon feel the full force of the storm. So much of our economy depends on these financial builders and their minions who buy and sell the products that the pain may actually end up being felt worse here than in the epicenters of the problem. You just don’t know it or feel it yet. It’s all happened too fast, in just a few weeks of another sweltering summer, with the worst, much worse, yet to come. Which is why I bet that in the time it took for you to read this article, the Tom Joad effect just took another few bucks out of your pocket. Get ready, many more dollars will soon vanish before you discover you’ve been robbed.

Cry me a river Jim. Sounds a lot like capitalism for the poor and socialism for the wealthy.

I and many people I know haven't lost squat cos we knew to stay out of that shit, get out early (or lock in a rate) or buy to live in a place.

I have a superficial tenuous understanding of this stuff at best, but honestly, who couldn't see the hysteria and greed and recklessness of the housing bubble and the easy money being disastrous? Well Cramer didn't and neither did the banks, the lenders, the development companies or people like Hizzoner Mike Bloomberg who has bent over backwards to smooth the way through any city agency for big foolish real estate ideas (A stadium on the west side. A Basketball Arena and gigantic luxury housing development in F*cking downtown Bklyn.) proposed by his billionaire friends.

These people took their chances. To bail them out is to remove important control mechanisms in place to keep investors and institutions from being short sighted. I have no problem with the financial industry shrinking in NYC, it's got too much money and power and makes this city a worse place to live. If anyone should be helped it's the people who bought to live somewhere who were steered down the wrong path with self destructing booby trapped loans. Not the Billionaires and the Millionaires etc...
posted by Skygazer at 9:53 AM on August 16, 2007


The published economic statistics are crap.

Anecdotes don't contradict data.
posted by smackfu at 9:58 AM on August 16, 2007


Wall Street loves to talk about letting financial markets weed out the weak. But when the Street itself gets in trouble, it sticks out its little tin cup, asking for help. And gets it.
posted by Skygazer at 2:15 PM on August 17, 2007


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