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It's the end of the world as we know it... lalala
August 16, 2008 11:23 PM   RSS feed for this thread Subscribe

Upclose and personal on the man, Nouriel Roubini, who predicted the subprime crisis. Apparently we're in for a long long haul out of this mess. Oh, and it may be the end of America (reg req'd) as we know it.

His blog.
posted by blahblah (99 comments total) 5 users marked this as a favorite

and more previously.
posted by blahblah at 11:25 PM on August 16, 2008


If you have 100 economists predicting 100 different scenarios, branding the one of them in 100 whose scenario came true as a prophet is missing the point. We should be skeptical of anyone who claims they can predict with high precision the behavior of complex systems like economies and the weather.
posted by wastelands at 11:52 PM on August 16, 2008 [5 favorites has favorites]


He must be having the worst I Told You So hangover ever.

Except that its got to be oh slightly frustrating to be the guy that's like "Hey, y'all I think the roof is catching fire. Yep, definitely on fire. Building is indeed burning. Whoop, there it goes!" And then the reporters on the scene are like, "GOSH, why you gotta be such a NAYSAYER!?!?! You're bumming us all out. And why is it so hot around here?"
posted by iamkimiam at 11:55 PM on August 16, 2008 [4 favorites has favorites]


And see also.
posted by Sonny Jim at 11:58 PM on August 16, 2008


I think his name might work against him. He should be performing in Vegas as "The Great Roubini."
posted by Dumsnill at 11:59 PM on August 16, 2008


If enough monkeys hit enough typewriters, one of them will predict the second Great Depression.
posted by Blazecock Pileon at 12:14 AM on August 17, 2008


Yeah, first of all lots of people predicted this. I remember reading about the impending housing crash all over the place for years. As it got closer and closer more and more people started saying it was happening.

Anyway, now some of the people who predicted the crash are saying we are heading into a huge depression, but being right once doesn't mean they will be correct a second time. I mean, if someone wins a coin toss, does that mean will accurately predict the next coin toss?

It's possible he is some prescient economist with fantastic models that other people just don't get, or he might have been talking out of his ass and just happened to get it right.
posted by delmoi at 12:33 AM on August 17, 2008


Blazecock Pileon: "If enough monkeys hit enough typewriters, one of them will predict the second Great Depression."

Yes, but some monkeysbloggers are more equalbetter than others.*

*Not implying anything negative towards any monkeys in particular...just an observation about monkey behavior in generalbusiness as usual.
posted by iamkimiam at 12:34 AM on August 17, 2008


Isn't this pretty much what The NYT's own Paul Krugman has been predicting for years? I don't uderstand what's so special about this guy's predictions.
posted by Dumsnill at 12:42 AM on August 17, 2008


Roubini's popular because he explains in great detail on not only what will happen, but why. The best article I've read from him is the Twelve Steps Scenario to a Financial Meltdown (PDF warning).
posted by amuseDetachment at 12:55 AM on August 17, 2008 [2 favorites has favorites]


The important point is that Americans are all fucked, and the rest of the world will laugh heartily when they're all dying in the streets, which will be any day now.

Once all of the Americans are dead, the rest of the world will build a global utopia of peace and sustainable living.
posted by Mr. President Dr. Steve Elvis America at 1:03 AM on August 17, 2008 [6 favorites has favorites]


We should be skeptical of anyone who claims they can predict with high precision the behavior of complex systems like economies and the weather.

. . .

I don't uderstand what's so special about this guy's predictions

Over a year ago we were having the debate here whether or not housing was going to go down. Zillow sez one of the properties that was looked at is down 6% YOY in the formerly "not-bubble" market of the tony Seattle burb of Sammamish.

Not to put an overly dramatic point on it, but IMO Nouriel was offering the red pill, so to speak, for people willing to get see the actual mechanics of the bubble while we were still engulfed in it and believing the BS.

There are actual facts and mechanisms involved here, that if you become educated on them and are able to see their causal connections the future "behavior" of the economy can become more predictable.

To illustrate my point, here's a graph I made from the Federal Flow of Funds report. AFAIK this is a presentation of reality that nobody else has bothered to plot, and can inform the perceptive observer of some important dynamics going on in the present system.

One of my college buds is the CEO of a leading loan industry corporation and had no idea of the degree of lending decline that has been going on.

That's like not understanding the relationship between air pressure and storm systems.
posted by yort at 1:14 AM on August 17, 2008 [5 favorites has favorites]


That's a pretty limp and stupid troll, even for you, Mr President.

The shitbats are coming home to roost, as Mr Leahy would say. All the graveyard whistling in the world isn't going to change the fact that the economic situation is more dire and more widespread than any but the DOOOOOMiest of prognosticators had expected, and there's very little indication that things will get much better any time soon.

Actually, I'd be more sanguine about America being knocked down a peg or five, to be honest, but much as I continue to feel the usual America-inspired fear and loathing, China scares me a fuck of a lot more.
posted by stavrosthewonderchicken at 1:16 AM on August 17, 2008 [1 favorite has favorites]


Why are you calling me a troll if you basically agree with me. Christ.
posted by Mr. President Dr. Steve Elvis America at 1:19 AM on August 17, 2008


Once all of the Americans are dead, the rest of the world will build a global utopia of peace and sustainable living.

Oh sure, and the world outside of U.S. borders is a nightmare land of orcs overseen by the Lidless Eye.
posted by JHarris at 1:28 AM on August 17, 2008


All the graveyard whistling in the world isn't going to change the fact that the economic situation is more dire and more widespread than any but the DOOOOOMiest of prognosticators had expected, and there's very little indication that things will get much better any time soon

Japan 1991-2003 is my model. There's a definite correlation between BAD BRAIN-DEAD LENDING and extended periods of the larger economy stalling while the financial pain is spread around the guilty players in the system like mono at high school.

I do have to give Bush & Co high marks for moving a Wall Street BSD into Treasury to fight this up close. Your garden variety CEO like O'Neil wouldn't have the chops necessary to even begin to know what to do or more importantly what not to do.

'course, Hoover had Andrew Mellon, and look where that got us.
posted by yort at 1:31 AM on August 17, 2008


Why are you calling me a troll if you basically agree with me.

Because that's what you were doing. Chumming the water, lazily and insincerely, hoping to hook a fish. Putting up a strawman in the most inflammatory way you could, presumably hoping to derail substantive discussion, or just for the lulz, maybe. The textbook definition of trolling. Whether I 'agree' with your 'point' or not, or even if I agree with the metapoint that you're making by pretending to believe what you say, deadpan, is not the point.
posted by stavrosthewonderchicken at 1:33 AM on August 17, 2008 [17 favorites has favorites]


Why are you calling me a troll if you basically agree with me. Christ.

Because you aren't in a agreement. You used a cheap-ass reductio ad absurdum tactic and you know it.

Grow up.
posted by sourwookie at 1:34 AM on August 17, 2008


Or what Stavros said.
posted by sourwookie at 1:35 AM on August 17, 2008


Man, what we need here is a good old-fashioned Malor/Mutant knock-down drag-out.
posted by telstar at 2:01 AM on August 17, 2008


Accept no substitutes.
posted by Kirth Gerson at 2:29 AM on August 17, 2008 [1 favorite has favorites]


Oh, and it may be the end of America (reg req'd) as we know it.

America as I knew it ended some time ago. I cannot imagine that America swallowing the kind and amount of blatant, horrific crap that this America has for a steady diet. We've all been pre-registered for it, apparently.


[/in-my-day curmudgeon]
posted by Kirth Gerson at 2:41 AM on August 17, 2008 [1 favorite has favorites]


It's like a Zen koan: Is it truly bad news, if you need a registered account to hear it?
posted by Blazecock Pileon at 3:18 AM on August 17, 2008 [5 favorites has favorites]


At the time, unemployment and inflation remained low, and the economy, while weak, was still growing, despite rising oil prices and a softening housing market.
The price of oil was rising. Is not not obvious to everyone that *everything* hinges on the price of oil? That six billion humans can only exist because we're harvesting epic but ultimately limited amounts of free energy and materials? One can always safely foretell gloom and doom when the oil supplies are dwindling.
posted by mullingitover at 3:45 AM on August 17, 2008 [2 favorites has favorites]


Wasn't the end of America predicted in the now deleted Armageddon thread? Look how well that worked out.
posted by fixedgear at 4:14 AM on August 17, 2008


You know one of the problem with predictions such as Roubini's is the system he's based in analysis on isn't stable; in fact it's constantly changing. In the case of the US Housing crisis we've seen The Fed react in unexpected ways, and with remarkable aclarity.

First of all, the tools that were always available - and used - by Central Bankers include
  1. Interest rates
  2. Reserve requirements
  3. Capital requirements
  4. Open Market Operations
  5. The Discount Window
  6. Lender of last resort

But The Fed has deployed several new tools, due in part to work by David Small and James Clouse(2004). This paper was floating about The Fed and circulating widely in academic circles long before the housing crisis, thus giving credence to the theory that's been advanced in some circles that a very wide range of people at The Fed were concerned about the housing boom and a possible crash.

Full citation: Small, D., H., Clouse, J. A., 2004, 'The Scope of Monetary Policy Action Authorized under the Federal Reserve', Board of Governors of the Federal Reserve System


New Tools deployed by The Fed during Bernanke's watch:

  1. The Term Auction Facility

    The Term Auction Facility, or TAF, is very similar to the TDWP but markedly broadens the collateral that may be used. Controversially, the TAF allows banks to pledge Mortgage Backed Securities - even those backed by sub-prime loans - as collateral for loans.


  2. Term Discount Window Program

    Like The Discount Window, the "Term Discount Window Program" or TDWP also offers collateralized loans to borrowing banks. Like The Discount Window, US Government Securities or high quality corporate bonds are accepted as collateral, but unlike The Discount Window, the TDWP allows institutions to borrow for up to thirty days. Even so, borrowing institutions must roll over, or renew loans obtained under the TDWP on a daily or weekly basis.


  3. The Term Securities Lending Facility

    The Term Securities Lending Facility, or TSLF is very similar to the TAF, however it is directed at a subset of banks known as "Primary Dealers", or institutions who deal directly with The Fed as part of regular treasury auctions.



So I guess the chances of Roubini's full scenario playing out to it's grim conclusion are reduced - perhaps sharply - by the fact that the underlying system is changing. And The Fed is listening and doing everything it can to prevent this outcome.

Also keep in mind this is not the first time the US Housing Market has crashed. Sure, it's a lot bigger a bang, but it's falling from a higher high.

So The Fed is on the job, actively - and drastically - changing the system these grim predictions are based on. Also, Bernanke - a student of The Great Depression - is certainly better suited than Greenspan to deal with such an event.

Just as some of the broader signals are calling a housing bottom, we're also seeing regional data in the United States showing a rebound in selected markets. Of course these areas were on the leading edge of the decline, and plummeted down some 45% or so. But a bottom is a bottom (if true, of course).

Meanwhile, the US still hasn't entered a recession, that US Yield Curve (which has very strong predictive powers about the US economy) isn't predicting a recession, the US Dollar is staging a very strong rally against against other currencies, some folks are calling a top in US inflation and it looks like Oil is gonna break $100 a barrel on the downside, with $110 in the near term almost a certainty.

Interesting times.

For the past year the big trade everyone was engaged in was short the banks, go long oil. And we saw the results. Lots of banks were trading far, far below fair value, and oil was in a classic asset bubble.

Now the money is flowing (no pun) out of oil, some folks are starting to pick up dirt cheap bank stocks and where this all goes next is anyones guess. My bet? Stagflation, and for a couple of reasons: first, this does seem to be where The Fed is trying to softland the economy. Second, and looking at the long view, the history of finance as I do, we've see other boom times - most recently the late 70's - end in stagflation.

So I'm positioning my assets for above trend inflation / above trend unemployment / below trend economic growth. Stagflation.

I've posted many times here in MeFi that even at the height of the crunch last August I was buying High Yield; still think there is value there, hard to go wrong with current yields approaching 20%. Lots of opp in fear dominated markets, wether bonds or housing.

Finally, I do have to note that although the academic press is positively humming - lots of research being done on the subprime crisis, it's causes, how it will play out, etc, I don't really see these grim pronouncements being published in peer reviewed journals.

In fact I just looked for Roubini and unless I'm missing something (first coffee of the AM don't you know), he's not published in peer reviewed journals nor being cited.

Rather curious I'd say
posted by Mutant at 4:23 AM on August 17, 2008 [5 favorites has favorites]


Mutant: "...he's not published in peer reviewed journals nor being cited. Rather curious I'd say"

Good grief. A simple google search for "nouriel roubini publications" brings up this page. You really didn't try very hard did you? More coffee required obviously.

Now, admittedly he appears to have pretty much stopped publishing in academic journals in 2004 & I'm certainly not qualified to judge whether his publications are in first rank economics journals or not, but it's not as if the guy is some academic nobody.

(Where is Malor anyway? I'd have expected him to turn up in this thread by now...)
posted by pharm at 4:55 AM on August 17, 2008


pharm -- "Good grief. A simple google search for "nouriel roubini publications" brings up this page. You really didn't try very hard did you? More coffee required obviously."

Ha! No I didn't google him, but did look in Ahtens and SSRN (both academic publishing databases) - interesting he stopped publishing in 2004 and started pushing his work onto his own blog and website, and no longer submits to peer reviewed journals.
posted by Mutant at 5:10 AM on August 17, 2008


Mutant: "broader signals are calling a housing bottom"

A month over month increase in pending sales from June to July is a pretty weak metric to use for calling a bottom. June to July goes up every year. Are you going to think it's a bad sign when the number goes down from August to September?

Why ignore the more informative year over year number?
posted by diogenes at 5:55 AM on August 17, 2008 [1 favorite has favorites]


Over a year ago we were having the debate here whether or not housing was going to go down

Most people knew this was going to happen for the past few years. And anyone who thinks it's over or that we've bottomed-out is crazy.
posted by Civil_Disobedient at 6:24 AM on August 17, 2008


diogenes -- "Why ignore the more informative year over year number?"

Yeh, granted, I wasn't ignoring, just couldn't find the publication I was looking for before (between making breakfast for Mrs Mutant and myself, and watching Olympics).

So, in terms of a US housing bottom, house prices in Cleveland fell some 37% from a high observed in September 2005 to an eleven year low seen March 2008 , before rebounding 18% in April and May.

Of course during Q1 2008 house prices in Florida dropped 3.3%, we saw falls of 4.4% in California and Nevada plummeted about 5%. So even though we're seeing a rebound in some of the smaller American cities - where prices didn't shoot up so so much - in places where there were sharp, very substantial gains we're going to see further falls before things get better.

The Office of Federal Housing Enterprise Oversight (OFHEO) tracks housing prices nationwide [.pdf], calculating month on month, quarter on quarter and year on year declines. Some interesting highlights for those not inclined to read the pdf: So, challenging market environment for housing? Without a doubt.

A systemic collapse? The type of broad based collapse we've seen bloggers on the internet predicting for well over a year - in fact as long as ten years in some cases?

Maybe its happening. I've got an open mind, but I'd like to see some data. I'm not seeing discussion of this broad collapse in any academic journals. Folks certainly are publishing loads on the subprime collapse, I've read a fair amount (not all!) of those papers, and nobody in the peer reviewed journals are predicting such broad based collapses.

So I'd like to see data documenting the collapse that one year after all this kicked off should be in full swing by now.

Not blog postings. Not strong opinions. Not grim predictions, but hard data showing the collapse and how its unfolding.
posted by Mutant at 6:26 AM on August 17, 2008


As bad as things are at the moment, I think the biggest danger is from ourselves. If we collectively believe that doom is inevitable, that will make doom inevitable. If we collectively believe that things are cyclical and that things will get better, they will. Some famous dude once said that all we have to fear is fear itself. I think that given the current conditions, that's very true in this case.

In other words, stop screaming and believing that the sky will fall because if you don't, it might.
posted by jamstigator at 6:37 AM on August 17, 2008


Mutant: If economics were anything like a hard science, then publishing in peer-reviewed journals would be a good marker for credibility. My personal impression though, purely as an outsider, is that it's a lot more like the social sciences where who you know and what you choose to write about makes a big difference to whether you get published or not.

(Although even physics can fall into that trap: witness the dominance of string theorists to the exclusion of other approaches despite the lack of any theoretical or experimental evidence in favour of string theories. It's a failing of human institutions to prefer people who follow the status quo.)

I'd still be interested to know why he stopped publishing, but without knowing more about the structure of the field, I don't really know what one can reasonably infer from it.
posted by pharm at 6:39 AM on August 17, 2008 [1 favorite has favorites]


Another source refuting overall collapse - the S&P/Case-Shiller data [.xls].

They don't go into as much detail as the Office of Federal Housing Enterprise Oversight data I presented earlier, and aggregate across Metropolitan Areas (e.g., the aggregate the Pacific Northwest in Seattle and don't, in this data set at least, break out Portland separately).

Their data is showing that for the broad, 20 Metropolitan Areas surveyed house prices declined about 20% during the period May 2008 to May 2006. During the period May 2008 to May 2007 house prices declined about 9.7%.

Once again, and referencing another source of data we don't see evidence of a broad collapse in housing prices, more a correction that most folks knew just had to happen.

Prices went up too far too fast. Inevitable that prices had to revert to the mean at some point.

We'll see some more downside, but, once again, the data doesn't support the argument for a collapse.


pharm -- "I'd still be interested to know why he stopped publishing, but without knowing more about the structure of the field, I don't really know what one can reasonably infer from it."

Yeh, I'm willing to bet he (correctly as it would seem from what I've read!) thought his personal economic prospects would be improved if he branded his work and pitched out on his own. Lots of these guys have side consulting businesses. I'm all for making money, and certainly I wouldn't hold that against him or his views / conclusions for that matter.

But this message of doom 'n gloom? The grim pronouncements of doomsday (or worse!!) constantly banged on by bloggers and internet economists? As I mentioned before, some of these folks have been predicting economic collapse for a decade or more. Well, even a broke clock is right twice a day.

So, I've got an open mind, but I'd like to see some data documenting this collapse.

jamstigator has an excellent observation; so much of the markets is based on emotion and you do have to be careful what you wish for.
posted by Mutant at 6:55 AM on August 17, 2008


Mutant: But The Fed has deployed several new tools, due in part to work by David Small and James Clouse(2004). This paper was floating about The Fed and circulating widely in academic circles long before the housing crisis, thus giving credence to the theory that's been advanced in some circles that a very wide range of people at The Fed were concerned about the housing boom and a possible crash.

If the Fed or others had foreknowledge of a housing bubble back in 2004 or 2005, why the heck wasn't anything done back then? In particular, who the fuck let the banks and lenders continue to grant freakishly unreal no-down mortgages to unqualified buyers, and then pawn the risk off to the broader market? I can't understand why such mortgages would be granted even in the best possible market (other than greed of the lenders and incompetence of the regulators)

[/naiveFilter]
posted by Artful Codger at 7:06 AM on August 17, 2008


Mutant: hard to go wrong with current yields approaching 20%.

For someone who knows next to nothing about the kind of things that have a high yield, it's not *that* hard. A few weeks ago after you said something similar I checked out the highest-yielding ETFs, just to see what they looked like. The one I decided to watch was RHY, which as I recall held mostly junk bonds and mortgage derivatives. Ridiculously high yield. Could've lost a fair bit buying that one. Not to disagree with your basic idea, but for me it serves as a reminder of how risky some of these things are. It seems useful to keep in mind that no matter how low the prices look for individual stocks, or bonds, or whatever, some of them will be going to zero. (I did buy some of those "dirt-cheap bank stocks", which are doing quite well so far.)

yort: a graph I made from the Federal Flow of Funds report.

It shows that mortgage debt is still growing at what appears to be a somewhat healthy pace. Down quite a bit from the absurdly rapid rate of debt growth of the recent past, but still firmly positive. I can't help but compare that with various other statistics such as those leading some people to conclude the US isn't yet in a recession. I'm not really sure what to make of it all. It could mean things aren't nearly so bad as some of the more dramatically pessimistic commentators out there like to think, and it could also support Roubini's contention that we're still a fairly long way from the end of this decline ("most of the losses from this bad debt have yet to be written off...")

Mutant: ...but, by no means 100% default.

I think many people do think of the situation as worse than it really is just because they compare it to the ridiculously-optimistic forecasts they had believed in last year. Obviously it's going to look a lot better when your measure for comparison is 100% of everything being in default.

The overall rate of US foreclosure filings is certainly high enough to be somewhat alarming, and prime delinquencies have been rising somewhat rapidly of late. 17% of houses for sale are foreclosures, and maybe 2.8 million households per year giving up on paying off their mortgages by one estimate. More than 2% of prime mortgage loans are delinquent, and that number has been rising somewhat rapidly. Even if it were only 1% of households per year that end up losing the game, that still adds up to a huge number of people if things take as long as usual to go back to "normal". Of course a "collapse" involving the 100% destruction of everything is somewhat unlikely, but I think you'll have a more difficult time if you want to press that suggestion above that no recession is expected in the near future or present (albeit with below-trend growth). Not just because of the housing market, of course. People often like to express this as a % confidence; Roubini has said 100% chance of recession, personally I would reserve a bit more room for error and guess 85%. If you meant to imply that it's substantially less than 50%, I can't help but think of that as rather overly optimistic.
posted by sfenders at 7:24 AM on August 17, 2008


Mutant: "I'd like to see data documenting the collapse that one year after all this kicked off should be in full swing by now."

I don't think any of the pessimists here (or Roubini) are arguing that we've already entered a systemic collapse in housing prices.

Why should it be in full swing by now? Why not in another year or two?
posted by diogenes at 7:33 AM on August 17, 2008


Labonte (2003) presents an interesting study of the US Housing Bubble, in particular priori bubbles.

Full citation:

Labronte, 2003, "U.S. Housing Prices: Is There a Bubble?", Labonte, M., , Analyst in Macroeconomics, Government and Finance Division, Special Report for Congress, Order Code RL31918.

In California, for example, prices spike about 75% in four years. They then proceeded to fall almost 14% between Q1 1990 to Q1 1995. In Texas, we saw prices rise about 25% over a five year term, and then falling back almost 15% from Q1 1986 to Q4 1988. Finally, in New England we saw prices rocket up almost 170% in six years, then falling about 13% from Q1 1990 to Q1 1995.

In all three of these bubbles the bulk of the declines were observed as sharp downward movements, then a period of relative calm, even though prices were still declining.

For example in Texas prices were down almost 13% Q4 1987 and in New England prices fell about 11% by Q3 1991. California reversed this process, with the bulk of their declines coming at the end of the period (i.e., some 12% from Q2 1992 to Q1 1995).

Looking at current research on the US Housing Crisis in general, and asset pricing bubbles specifically, in the United States (unlike, for example, the UK) we're seeing a supply bubble, NOT a pricing bubble.

Regardless, looking back at several US Housing bubbles (yes, this isn't the first bubble we've had in housing) without an exception house prices always revert to long run function of nominal income.

So to justify house prices either incomes have to rise sharply or home prices have to fall sharply - we're see the latter take place, not the former.

-- "If the Fed or others had foreknowledge of a housing bubble back in 2004 or 2005, why the heck wasn't anything done back then? In particular, who the fuck let the banks and lenders continue to grant freakishly unreal no-down mortgages to unqualified buyers, and then pawn the risk off to the broader market? I can't understand why such mortgages would be granted even in the best possible market (other than greed of the lenders and incompetence of the regulators)"

Yeh, great observation. I don't know the answer, except that the folks in banking and the regulatory community who were concerned about this bubble were somehow overruled by the people who stood to gain. And perhaps could afford better lobbyists.

The Federal Reserve was attempting to correct the situation - raising interest rates several times over a three year period, from a 2003 low of 1% to a 2006 high of 5.25% - in an attempt to bring things back under control. But bubbles almost never slowly deflate - they burst.

To some extent it was an avoidable situation, and The Fed was doing what it could. I don't fault them for trying but execution is another topic.


sfenders -- "People often like to express this as a % confidence; Roubini has said 100% chance of recession, personally I would reserve a bit more room for error and guess 85%. If you meant to imply that it's substantially less than 50%, I can't help but think of that as rather overly optimistic."

Well, it's widely known that the US Government Yield Curve has strong predictive powers (like the stock market) regarding the forward looking performance of the American economy.

This was "known" anecdotally for years, but Estrella, from the New York Fed finally quantified these properties back in 1996 [.pdf] .

Now I'm not saying we've got ZERO chance of a recession, and if I had to quantify I certainly would put it as 50/50, maybe a little less than 50%. This is based on the current US yield curve, which is still looking very, very healthy.

If a recession were imminent, we'd start to see yields on the short end rise, and in the limit invert the yield curve as bond prices adjusted to factor in the anticipated rate cuts.

So market isn't predicting a recession yet - will be interesting to see how this shakes out.

"Could've lost a fair bit buying that one. Not to disagree with your basic idea, but for me it serves as a reminder of how risky some of these things are. It seems useful to keep in mind that no matter how low the prices look for individual stocks, or bonds, or whatever, some of them will be going to zero."

Yeh, RHY is a real dawg. I'm not in RHY or any other funds they sell. The only thing I'll say on high yield is I like to own large positions in thinly traded securities - generally between 5% to about 20% of daily trading volume. Big positions. I know about concentration risk, but I can't track / research too many firms at the level of detail I do. Thinly traded is good as not too many people own, nor track these companies. Almost always, they are undervalued when I take a position. I've only got six firms right now, one REIT that I've owned for about 15 years, and five high yield ETFs.

You've really, really gotta look at these things carefully, get a prospectus and track them daily. Catch them at the right time (I last went to the market in August / September 2007 in the tick of it) when fear dominated selling is going on and you'll do well.
posted by Mutant at 7:47 AM on August 17, 2008 [1 favorite has favorites]


Mutant's reporting of housing prices shows that the numbers themselves mean nothing without looking at the reasons behind them, and how they might relate to the national figures. I don't know much about the other regions, but Grand Junction, Colorado is going through an oil and gas boom right now, so of course prices will rise there as people move in for the jobs. Just more proof that real estate is extremely local, and difficult to make national guesses based on local numbers.
posted by Eekacat at 7:49 AM on August 17, 2008


Mutant: But this message of doom 'n gloom? The grim pronouncements of doomsday (or worse!!) constantly banged on by bloggers and internet economists? As I mentioned before, some of these folks have been predicting economic collapse for a decade or more. Well, even a broke clock is right twice a day.

To be fair to Roubini, I don't think he's ever predicted outright economic collapse. Tough times for some, sure, but not TEOTWAWKI.

I believe his current call is for there to be a recession in the US which counts as the worst since the Great Depression, but that things are not going to be as bad as they were then. That's no where near being TEOTWAWKI.
posted by pharm at 7:59 AM on August 17, 2008


Meanwhile, the US still hasn't entered a recession

False and only marginally true if you go on the unrevised GDP numbers. We're on the knife's edge and the slightest revisions to previous GDP inputs will put us there, like how Q407 went into the red recently upon revision.

EVERY indicator I've seen is lit up red. The only thing keeping the US out of recession is the absurdly low official inflation numbers and Pollyannas like you pinning their entire argument on that. Sales are down. Private employment is way down. Personal income is down. Production is down. (WSJ chart summary here)


It shows that mortgage debt is still growing at what appears to be a somewhat healthy pace. Down quite a bit from the absurdly rapid rate of debt growth of the recent past, but still firmly positive. I can't help but compare that with various other statistics such as those leading some people to conclude the US isn't yet in a recession

See, that's blue-pill thinking, LOL. Banks are still lending money so no crash!

The reality of the matter is that banks are lending money at a rate approaching what they were doing in 1998, WHEN HOME PRICES WERE HALF OF WHAT THEY ARE NOW.

At the risk of veering to the plebian, credit is the NO2 of our economic engine. With it in abundant supply, we get wonderful expansions like the late 1920s and 1980s Japan. When it closes up, we get the 1930s and 1990s Japan.

The housing market of 2008 is simply NOT GOING TO CLEAR at 2008 prices if lending is at 1998 levels.

There is NOTHING supporting 2008 home pricing now -- with stagnant wages, declining incomes, rising commodity & energy prices, rents are under pressure nearly everywhere, reducing the comfort level of purchasers of "income property".

The insane lending programs that fueled the speculative boom 2003-2006 are GONE. The subprime wave may have crested, taking the market down 20-30% in many places, but the Alt-A wave of neg-am recasts is still coming at us.

All the above means is that the entire FIVE TRILLION of new bubble mortgage lending 2003-2007 is at substantial risk of default. We've already seen ~10% of this lending appear as losses to the balance sheets. ANOTHER 10% is definitely coming, with a FURTHER 10% possible (but not probable in my utterly untrained and speculative opinion).

Each 10% hit is a FIVE HUNDRED BILLION distribution of pain to the system.
posted by yort at 9:06 AM on August 17, 2008 [2 favorites has favorites]


pharm -- "To be fair to Roubini, I don't think he's ever predicted outright economic collapse. Tough times for some, sure, but not TEOTWAWKI.

I believe his current call is for there to be a recession in the US which counts as the worst since the Great Depression, but that things are not going to be as bad as they were then. That's no where near being TEOTWAWKI."

Fair enough, and I certainly don't want to appear to be putting words in Dr. Roubini's mouth. That being said, the internet in general and (at times) Metafilter is chock full of doom and gloom.

Even so - his The Decline of the American Empire article presents the view that "Recent economic, financial and geopolitical events suggest that the decline of the American Empire has started." so that sorta qualifies, especially in my view as I'm a baby boomer and don't know of world that hasn't been dominated by US interests.

I wonder what Roubini charges for full access ("Premium subscriber") -- apparently a full subscription offers one-on-one with Roubini himself, as well as access to all his writings, etc.

So clearly this is a better use of his output - sell your content on your own web site, bundled in with a range of ancillary services, rather than distribute for free in peer reviewed journals.

In terms of a recession; well, we are still seeing growth, albeit slowing growth. We need two consecutive quarters of economic contraction before a recession is technically called. I say technically as certain industries could be in recession - even depression - while the economy as a whole isn't.

More in my own domain: certain parts of banking are in deep recession, almost a recession (e.g., product structuring) while other areas are booming (e.g., risk management across the board).

Once again we've got to use the tools we've got. That US Yield Curve is one of the absolute best tools we've got to look forward. It still isn't predicting a recession, although it did indeed invert back in February 2006.
posted by Mutant at 9:09 AM on August 17, 2008


I wonder what Roubini charges for full access

Haven't a clue: I have a free years subscription via work which expires in November so I guess I'll probably get the hard sell then.
posted by pharm at 9:18 AM on August 17, 2008


Can someone post the full text of The Decline of the American Empire from the reg. site here?
posted by mrgrimm at 9:26 AM on August 17, 2008


yort -- "The only thing keeping the US out of recession is the absurdly low official inflation numbers and Pollyannas like you ..."

Wow! Mutant's are indeed powerful, but I had no idea!! Singlehandedly or am I working in some kind of group of superheroes? Ha!


But this -- "and the slightest revisions to previous GDP inputs will put us there, like how Q407 went into the red recently upon revision." -- is a good point.

Key difference between US & EU economic data; the US tends to revise down while the EU tends to revise up. Not relevant, just a pet peeve of mine I like to trot out when folks try to compare US / EU data, GDP specifically. In any case, its almost certain there will be downward adjustments.


"EVERY indicator I've seen is lit up red."

Ok, but you have any tabular data? And are you considering just the five series you linked to? Those charts aren't that easy to read, and truth be told three series seem to be steady state or slightly declining, while two are actually increasing. That being said, in terms of defining a recession, only GDP series is applicable. Not personal income, etc. There is a non casual relationship between some of the other series you linked to and the probability of a recession, but certainly not a strong as the relationship between the US Yield Curve and a recession (I think Estrella has looked into this further in other papers - I'll see if I can cite). But in any case, if we're talking about a recession it's GDP and changes in GDP alone that define a recession.

If you can come up with data across those series, like the the S&P/Case-Shiller data I linked to previously it may clarify your argument somewhat. I can get it off a Bloomberg, but I won't be near a terminal until tomorrow AM.


"All the above means is that the entire FIVE TRILLION of new bubble mortgage lending 2003-2007 is at substantial risk of default."

Now that's way out of the ballpark; even the most extreme default scenarios put the overall loss at about two trillion, with consensus (I believe based on 40% default, or in other words, two out of every five loans made default) clocking in at about one trillion.

Not saying you're wrong - this is your opinion, correct? If not please cite so we can read through the argument - but it's very far out on any distribution of possible end states that I've seen.

Could happen, but what's the probability?


mrgrimm -- "Can someone post the full text of The Decline of the American Empire from the reg. site here?"

Yeh, I'd like to see it as well. Assuming it's copyrighted maybe a few highlights that would be allowed under fair use?
posted by Mutant at 9:32 AM on August 17, 2008


To some extent it was an avoidable situation, and The Fed was doing what it could. I don't fault them for trying but execution is another topic.

The Fed was doing the same thing it was doing during the S&L crisis of the 80s: Nothing.

It's the Fed's job to police the system which it abjectly failed at in 2002-2003. I didn't understand the true scope and depth of the crimes until the Casey Serin story came out in late 2006. Before then, I believed the "rational actor" theory of housing market participants. How little did I know.

Comparing previous bubbles to the present situation is not necessarily informative. With globalization, trade imbalances, peak oil, the hollowing out of domestic industry, demographic changes (boomer generation net productivity declining instead of rising) IMHO we're in terra incognita now. Cut the $600B+ annual defense bill in half (where it should be had we saner heads at the tiller) and you're looking at THREE MILLION $100K earners joining the unemployment lines.

My outlook is not 50-50 recession, but 50-50 "the center cannot hold" over the next decade.

I'm not entirely pessimistic; should we get some lucky breaks with alternative energy in the next 5-10 years that sector will certainly help us as much as the dotcom productivity boom did in the 90s. I come to this seed of optimism from my experience in being utterly wrong about the 90s economy in 1992.
posted by yort at 9:33 AM on August 17, 2008 [1 favorite has favorites]


Anyway, now some of the people who predicted the crash are saying we are heading into a huge depression,

As far as I know, essentially all of them are. Bubbles mean crashes mean economic havoc. It's pretty basic, really.

The subprime crisis was entirely obvious if you just looked with clear eyes at the problem, and didn't let Greenspan baffle you with bullshit. Housing going up 20% a year, all over the country, was grossly abnormal. Wildly so. Malignantly so.

It amazes me that people wouldn't listen when we told them that. And it rather makes me want to bash my head on the desk that you're being all skeptical now. We got a lot of it right, more than mainstream economics did.

And why is that? Because economics as practiced in 1990+ is total wishful thinking. It's roughly equivalent to medieval alchemy, and it's gotten insular and stupid. It's gone to a weird place, lost in mathematical models, mostly detached from reality.

What this fellow is probably doing, as many who are calling these crises do, is simply standing back a bit and looking at the big picture. If you ignore the bafflegab, a 7% trade deficit, a 50+ trillion dollar government deficit, wild inflation in first assets and now commodities, and vast personal debt pretty much spell financial apocalypse.

And it's not difficult to understand this. It's so fucking simple, in fact, that it's endlessly frustrating that people won't simply look and add things up for themselves. America can't pay its debts. There's no physical way it can happen. You can get into layer after layer after layer of complexity from there, but fundamentally: we're bankrupt. Way past bankrupt. And things are going to get incredibly bad.
posted by Malor at 9:33 AM on August 17, 2008 [2 favorites has favorites]


Dumsnill: Isn't this pretty much what The NYT's own Paul Krugman has been predicting for years?

My impression from reading Krugman and Brad DeLong is that Roubini's a respected economist, not an outsider. Kenneth Rogoff: “If you’re sitting around at the European Central Bank,” he said, “and you’re asking what’s the worst thing that could happen, the first thing people will say is, ‘Let’s see what Nouriel says.’ ”

From Krugman's blog:
What Nouriel deserves special credit for was his argument that there would be large “knock-on” effects from the bursting bubble on the financial system — that banks and other financial institutions would lose so much capital that the effect would be to freeze up the financial system. ... In retrospect, this seems obvious — but right up until a year ago, the word was that the crisis was “contained”, and Nouriel was way in front of everyone else in saying that it wasn’t.

posted by russilwvong at 9:36 AM on August 17, 2008


That US Yield Curve is one of the absolute best tools we've got to look forward.

I wanted to stay out of this thread because I'd rather not write a 5 page diatribe, but Mutant, you've got to stop selling this as an indicator that the future is looking up. Long-term investors who knew that inflation and dollar devaluation were a problem (i.e. those who a year ago thought that the world was decoupled and the US would enter a recession by itself) ran away from long-term Treasuries and instead parked their money in commodities. The yield curve, right now, is a mess, and given that we're in the midst of the perfect storm of negatives (stagnant economy, inflation, lack of credit access, leverage unwinding, and Fed injections that are masking the real troubles banks face), two consecutive quarters of negative growth or an inverted yield curve are hardly accurate measures of the reality out there. And the fact that you're touting these things tells me that a) you've had way too much kool-aid, or b) you've never read about the japanese crisis or real reason for the Depression.

BTW, I have to admit, mentioning the Depression in any economics or finance thread is akin to Godwin. And I'm sort for my part in Godwinning the thread, but sometimes, a Nazi is a Nazi.
posted by SeizeTheDay at 9:37 AM on August 17, 2008 [2 favorites has favorites]


Now that's way out of the ballpark; even the most extreme default scenarios put the overall loss at about two trillion, with consensus (I believe based on 40% default, or in other words, two out of every five loans made default) clocking in at about one trillion.

My point is that there was *five trillion* in the 2003-2007 vintages and that virtually ALL of these buyers will be underwater on their loans and thus in the "risk of default" pool, not that they will all default.

You'll note that we are in violent agreement here. My argument continued that losses will total $1T, perhaps $1.5T. This implies we are at best 1/2 -- and perhaps only 1/3 -- through the woods on this.
posted by yort at 9:41 AM on August 17, 2008


Aaaaaaaand, heres Malor!.

sorry.

mrgrimm / Mutant: I probably can't (legally) repost it, but I'll try and summarise:

1) The US has squandered it's soft diplomatic influence by over-reliance on hard military power.
2) The rise of China / Russia / BRICs etc will inevitably lead to some rebalancing anyway.
3) The US' reckless economic policies are storing up problems for the future.

The US is now both the largest net borrower (current account deficits running at 700 billion USD / annum) and largest net debtor (foreign liabiities > 2.5 trillion USD). This is bad because:

1) The centres of empires tend to be net creditors & net lenders. (The reversal from one state to the other signalled the end of the British empire for instance.)

2) The last time the US ran similar deficits, the creditors were allies of the US (Japan, Europe etc). This time the creditors are China, Russia and unstable petro-states.

3) This exposes the US to 'financial terrorism': these countries can threaten economic havoc without actually invoking it pretty much at will if they choose to.

4) These US creditors are not happy with financing current US problems on the poor terms they have been getting (ie, buying non-voting bank shares etc). Expect them to demand a 'seat at the table' ie board seats, real shares etc etc next time around. Is the US really ready for majority ownership of much of it's financial system by outside interests? That may be the price of the next bailout & if the US gov tries to block such ownership then the bailout probably won't happen at all.

All of the above means the likely end of the dollar as a reserve currency & the gradual decline in releative importance of the US, in a process which will likely take decades to play out.
posted by pharm at 9:54 AM on August 17, 2008


SeizeTheDay -- "I wanted to stay out of this thread because I'd rather not write a 5 page diatribe, but Mutant, you've got to stop selling this as an indicator that the future is looking up. "

Ok, what peer review quantitative metric would you suggest we use?

When I first started working on a trading desk everyone "knew" the yield curve was an efficient predictor of recessions. Estrella put the quantitative research in place to codify what everyone knew.

The yield curve is a predictor of future US economic activity, full stop. Estrella (read the linked paper) put in place the mathematical basis for predicting a recession. It's not the kind of hand waving we see all too often, especially so from internet economists. Its a quantifiable model of predicting recessions.

If you've got another model or metric please cite. I'd like to hear about it, especially ones that have appeared in peer reviewed journals, and are accepted by people working or doing research in the field. I am aware of others, but this is your argument so I'll let you take it from here.


"The yield curve, right now, is a mess, ..."

How so? Upward sloping. Nothing abnormal about it at all. Not a mess - just look at it. Spreads aren't even very tight. Why would you suggest it's a mess?


"...two consecutive quarters of negative growth or an inverted yield curve are hardly accurate measures of the reality out there. "

Well, I guess you could advance your own metrics and definitions, but the field I've studied and worked in professionally for about 25 years holds both of those as truths. Not really sure where you're going with this.

It is what it is.


yort -- "You'll note that we are in violent agreement here. My argument continued that losses will total $1T, perhaps $1.5T. This implies we are at best 1/2 -- and perhaps only 1/3 -- through the woods on this."

Ah! At risk is a little different than I thought.

Yeh, we'll have to see how things shake out. Certainly at the time the loans were advanced there were risks.

I just don't think the defaults will be so high. As I commented, most of the research I've read puts total loss at perhaps one trillion, with some of the higher estimates approaching two trillion.

Of course as these are all probability adjusted estimates, any changes to the overall system impact these predictions, and I do think for the better.

I don't have any data, but I do know lots of the big funds - the same folks that were long oil - are now moving aggressively into CDOs and other structured products. They aren't taking these big bets to lose money, because defaults are going to surge.
posted by Mutant at 9:57 AM on August 17, 2008


Reading more carefully, it looks like you can get free access to at least Roubini's blog:

Go here which is the permalink for the blog post then click on "Register for Nouriel Roubini's Global EconoMonitor". Registration is free & will give you access to all the blog postings etc. It's all the econometric regional analysis and stuff which costs actual money.

You can unsubscribe from the newsletters once you've signed up IIRC.
posted by pharm at 10:02 AM on August 17, 2008


America can't pay its debts. There's no physical way it can happen.

Au contraire.

US GDP: $14.2565T
US debt: $9.598T

Our GDP still exceeds our debts. And while our debt load is up around 67%, much of that debt is because up-and-coming economic powers have been willing to buy our Treasuries. Why?

Because putting money in the US economy is the safest investment in the world.

And more than that, what's happened in the last month? The dollar has gained 8% on the euro. Oil is down over $30/barrel between the strong dollar and the hedge funds fleeing from petroleum.

Why has all this happened?

Because when there are fears of a global recession, the big global money wheels move their money into the most solid positions they can. And that means capital is flooding back into the US economy. That will, of course, mean more debt in the form of T-bills, but it also means more money available to stave off a complete monetary system collapse.

I don't agree with everything Mutant says -- we're probably another 2-3 quarters away from bottom in the housing market, longer if interest rates go up, and we're probably in a recession right now and won't know it until the economists agree on it a year from now. But I think his vision of things is closer to the truth than the "END IS NIGH WE WILL ALL BE CANNIBALS!" people.

What it came down to for me was trying to answer a really simple question -- if oil prices are going up, why were XOM and BP tracking with the S&P 500 most of the year rather than outperforming it considerably?

And when I realized the answer -- hedge funds were buying oil futures, not oil companies -- I realized that what we're seeing right not isn't "THE END OF OIL" but trillions of dollars running around making a mess of markets and economies trying to find a new place to stay with the collapse of the housing bubble.

There maybe a depression out there, but I think it's extremely unlikely. Stagflation looks pretty likely, probably after a recession. But I think there's a way out, and I think the Fed is starting to see it, and I think Obama sees it, too. I am worried, but the "doom and gloom" of people here, especially someone who said that we'd be seeing Zimbabwe level inflation despite the obviousness of that fallacy, is probably overwrought.
posted by dw at 10:06 AM on August 17, 2008 [1 favorite has favorites]


Well, I guess you could advance your own metrics and definitions, but the field I've studied and worked in professionally for about 25 years holds both of those as truths. Not really sure where you're going with this.

My vague chart above came from this WSJ blog post, from which:
But the National Bureau of Economic Research’s Business Cycle Dating Committee, the nation’s arbiter of recessions, has enough latitude to make the call. GDP is among five key indicators the committee follows to determine a recession, which it defines as “a significant decline in economic activity spread across the economy, lasting more than a few months.”

posted by yort at 10:06 AM on August 17, 2008


The Federal Reserve was attempting to correct the situation - raising interest rates several times over a three year period, from a 2003 low of 1% to a 2006 high of 5.25% - in an attempt to bring things back under control. But bubbles almost never slowly deflate - they burst.

To some extent it was an avoidable situation, and The Fed was doing what it could. I don't fault them for trying but execution is another topic.

Was it still attempting to correct the situation under Bernanke?
Bernanke is also firmly opposed to the notion that central banks should raise rates to prick bubbles in the stock market or elsewhere. In a paper written at the height of the dot-com mania, in late 1999, Bernanke and his friend Gertler argued that it is virtually impossible to identify a bubble before it pops [I believe this is the paper in question]. Many Wall Streeters dismiss this out of hand. Robert Barbera, the chief economist at ITG, remarked of 1999, “A child of 4 had to know it was a bubble.” Regardless, Bernanke maintains, the interest rate is too blunt a tool for addressing a narrow sector of the economy like tech stocks or even housing. Indeed, Bernanke says he believes that the Fed’s actions to cool off stock-market speculation in 1929 contributed to the Depression and was a grievous error. This view remains highly controversial. Asset bubbles are bound to burst, and various foreign central bankers argue that when they do, the economy suffers and people lose jobs. Ignoring them is hardly without risk. (The Education of Ben Bernanke)
I'm a little leery of taking a summary in the NYT Sunday magazine at face value, but if that's an accurate description it sounds like Bernanke didn't try to do much of anything about the bubble until after the fact.
posted by enn at 10:06 AM on August 17, 2008


On US yield curve thing, I seem to recall that the inversion typically precedes the recession, sometimes by more than a year. This time it remained inverted for quite a while, until mid-2007 iirc. I would say that supports rather than contradicts the idea that the recession is nigh.
posted by sfenders at 10:07 AM on August 17, 2008


US GDP: $14.2565T
US debt: $9.598T

The GDP number is total bullshit. LOL.

The engine pulling this train:

Real federal government consumption expenditures and gross investment increased 6.7 percent in the second quarter, compared with an increase of 5.8 percent in the first. National defense increased 7.3 percent, the same as in the first. Nondefense increased 5.3 percent, compared with an increase of 2.9 percent. Real state and local government consumption expenditures and gross investment increased 1.6 percent, in contrast to a decrease of 0.3 percent.

There are 100M households in the US. A $14.25T GDP implies a mean household productivity of $140K per year.

But according to the Census bureau, the median household income was $60K in 2004.

I smell a rat here. Imputed rents and hedonics may juice the GDP, but it's not going to pay the bills.
posted by yort at 10:16 AM on August 17, 2008


Au contraire.

The President and Chief Executive Officer of the Federal Reserve Bank of Dallas wishes to disagree with you.
posted by pharm at 10:16 AM on August 17, 2008


Mutant, prior to the 70s, stagflation was considered impossible. As the article in the OP states, Roubini, just two years ago, was considered an outsider. My point is that statistics, and mathematical models, are not entirely accurate, or even relevant, when trying to describe a system that is fundamentally irrational at times. Check out this link. The money quote is:

Robert F. Stambaugh, a finance professor at the Wharton School of the University of Pennsylvania, offered another reason to be tentative: there have been few recessions over the last 50 years - just nine, according to the National Bureau of Economic Research. Even if the world were not so different today, Professor Stambaugh argues, this sample size is not big enough to support much confidence in any statistical conclusions.

NOTE that these doubts about methodology do not support Mr. Greenspan's confident assertion that the yield curve has lost its forecasting ability. Instead, they suggest that economists need to be cautious in drawing any conclusion about the yield curve's significance. According to John H. Cochrane, a finance professor at the University of Chicago, the small sample size makes it very difficult "to determine what the relationship in the first place was between an inverted yield curve and recessions, much less to know if that relationship may have changed recently."

Mathematical models (in economics) are based on human assumptions, which is why any sort of statistical analysis, and conclusion, needs to be carefully vetted and judged against a more holistic model of history. A couple of decades ago institutional investors could not park their money in commodities like they can today. The relative ease, and low cost, have made it much easier to slosh money (actual money) around. Further, 30 years ago decoupling wasn't a well known phenomenon. So the idea that people would rather put their money in commodities, as opposed to long-term Treasuries, changes the assumptions that people make when determining the accuracy of the yield curve.

It's kind of sad that you're appealing to your 25 years of industry experience as useful for your argument. Clinging to the most simplistic of argument styles (appeals to authority) are exactly why Greenspan was believed for all of these years, and why Bernanke was believed a year ago when he said that subprime was contained. How sad a state of affairs is it when CRAMER was right a year ago, and the Fed (and Bernanke, a student of the Depression) was wrong.
posted by SeizeTheDay at 10:18 AM on August 17, 2008


yort: If the average employee isn't earning less than the profit that they're making for their employer, then said employer is going to go out of business in short order.

Also, compring medians and means is not going to give you useful answers given the heavily skewed nature of the US income distriubution.
posted by pharm at 10:19 AM on August 17, 2008


Shit, the $64K was in fact mean, not median. Typo.
posted by yort at 10:21 AM on August 17, 2008


BTW, I should add that I consider your contributions here very insightful and informative, Mutant, and just because I disagree with your view on the economy (yield curve and 2 quarters of negative growth), that shouldn't be seen as a judgement of your other contributions here, which I think are light years better than most.
posted by SeizeTheDay at 10:31 AM on August 17, 2008


f the average employee isn't earning less than the profit that they're making for their employer

but are not employers incomes not part of the household income statistics?

Make no mistake, the present $5.4T public debt and $4.1T intragovernmental debt are hard numbers.

GDP is not a hard number, it makes headcheese look like filet mignon.

The federal flow of funds report does have interesting entries for national savings, however:

Total Household Assets:

2001: 28611.7B
2002: 26327.1
2003: 30466.3
2004: 33222.1
2005: 35392.0
2006: 38686.9
2007: 40706.5
1Q08: 39402.0

Hmmm. 2002 was a recession. 1Q08 looks like one too!

Total Liabilities:

2001: 11091.8B
2002: 12097.2
2003: 13207.4
2004: 14737.5
2005: 16441.0
2006: 18145.3
2007: 19607.0
1Q08: 19818.1

From these two we can naively calculate the Net Wealth of the Personal Sector:

2001: 17519.9B
2002: 14229.9
2003: 17258.9
2004: 18484.6
2005: 18951
2006: 20541.6
2007: 21099.5
1Q08: 19583.9

The Treasury says FY01 ended with the following National Debt levels:

$3.3T public debt & $2.4T intragovernmental.

So from 2001 to 2008 net household wealth has increased just about $2.1T, while the Federal Gov't has borrowed $2.1T from the public and further cached away another $1.7T in the FICA surplus promises (ie future debt obligations).

Sustainable?
posted by yort at 10:42 AM on August 17, 2008


Per the GAO, dw, the US debt exceeds fifty trillion dollars. They use GAAP. And that's fifty trillion in cash, in the bank, earning interest, not just fifty trillion over some period of time. Fifty trillion in actual present value.

The nine trillion figure is cash-basis accounting. For an entity the size and complexity of the federal government, that's distilled essence of balderdash.

The GDP numbers are highly suspect and untrustworthy, as well. That's not actual cash changing hands. Those numbers have been massaged so heavily (and wildly inflated in the massaging, natch), that they have no real meaning anymore.

Your numerator's at least five times what you think it is, and your denominator is much lower.
posted by Malor at 10:47 AM on August 17, 2008


Yort: Personally I wouldn't trust the household income numbers all that much. At the high end, the rich are fairly good at (usually legally) stuffing profits in places the taxman can't get at it. Hence the mean household income fails to capture the mean income generated per household.
posted by pharm at 10:48 AM on August 17, 2008


(Of course, maybe that means such income doesn't show up in the GDP either?)
posted by pharm at 10:49 AM on August 17, 2008


Funny, if you mash Malor and pharms posts immediately above you get my synthesis.

Yes, we have $50T of unfunded liabilities on the infinite horizon. This puts us in Japan and Zimbabwe-scale levels of being up the creek.

Yet we have a immense concentrations of personal wealth in this country.

Wise governance (ie backing out everything Bush and the Republicans have done since 1994) over the next ~8 years can start to get us out of the future crisis we have been slouching towards.

We also have immense opportunities for driving cost out of the public health sector (where the bulk of that $50T NPV burden lives).

Count me as being between Malor and Mutant in this debate, LOL.
posted by yort at 11:01 AM on August 17, 2008


Yort: I think I'm on your side here :)

Mutant: Is it possible that the fact that your 25 year career falls in a period when household debt as a proportion of GDP in the US expanded more than at any other time might skew your gut reactions to these issues?
posted by pharm at 11:33 AM on August 17, 2008


yort -- "My vague chart above came from this WSJ blog post, from which:..."

Ah the charts were fine, just difficult to read especially so over the last, perhaps most significant term. If you've got the data underlying the chart that would be great. Otherwise no worries; I'll be at my Bloomberg in the AM and can research. Failing that I'm sure DataStream has the underlying information. I still don't see these series as proving much of the conclusions offered but, as I've said before, I've got an open mind.

It's just that I prefer to see data, data that can be used in a model.


SeizeTheDay -- "Mathematical models (in economics) are based on human assumptions, which is why any sort of statistical analysis, and conclusion, needs to be carefully vetted and judged against a more holistic model of history."

But what makes you think the models in use at most - if not all banks aren't so vetted?

I can tell you from an insider perspective (and that seques nicely into your other point, my career history, that I only raised for context) that most models are indeed vetted. Please show me a documented (and by that I don't mean a blogspot link please) example of a model that was not vetted by an institution / regulators before deployment.

The modeling deployment exercise at regulated financial institutions implies the following non-trivial and somewhat pricey (i.e., expensive) process has occurred. Note that we are assuming all of the following takes place in a regulated financial institution (that distinction will be very important later):

  1. A mathematical model is created for a given purpose; for simplicity let's assume to value the tranche of a CDO

  2. The models input & outputs are documented, as well as operational parameters and assumptions

  3. The relevant academic references supporting this model are located & cited , 'cause at a regulated instituion, one can't stray too far from industry accepted practice (a valid criticism of Risk Management at banks)

  4. Loads of data to test this model is assembled

  5. The functional results of this model i.e., outputs for range of inputs are noted

  6. ALL of this material is presented to the institutions New Products Committee, ALCO and other, interested parties (that phrase alone means a hell of a lot more than it used to, in this post SOX world) who must review, approve and sign-off the model

  7. IF any of the institutions own internal groups disagree you get to start over, otherwise

  8. Start your business. Trade trade trade and try to make some money until

  9. The regulators start asking questions. You don't want that, you want to exploit market opps, so remember all that information you assembled? Get together a subset and

  10. Present your models backing material to the appropriate regulators

  11. The regulators vett the model, insuring that it performs as represented - note that to accomplish this, the regulators typically will have their OWN models, and largely look for agreement - not precise values, just general agreement of results - this distinction will be very important later

  12. IF the regulators don't approve of your model many things can happen, and you're gonna be damn glad you withheld information early on because you: 1) provide more data, 2) provide more theoretical background to increase their comfort level, 3) escalate - I've dealt with both The Fed and BOE and they are LARGE institutions; someone else might agree, 4) start over, rebuild your model

  13. IF the regulators didn't like / approve of your model, various internal groups (e.g., Risk Management) are gonna start to ask questions, and they're gonna get increasingly agitated as time goes by. So you

  14. Trade trade trade! While trying to convince internal groups you know the market better than them or the regulators and

  15. Hope you don't get shut down while that market opp still exists


A few caveats.
1) Creating a model to value assets is a TEAM effort, typically involving tens if not dozens of people. Not all full time, but very many people will have a say in this activity.

2) Each step may and frequently is carried out by more than one person. Banks do this for many reasons and I'll present just a few here: first it's impossible to be an expert in everything, second, nobody is infallible, you're gonna miss something and make a mistake, and, in banking, mistakes mean loss of money. Not good. Third, possibility of fraud. Forth, key man syndrome - banks hate it, and try to avoid it ay any cost.

3) I'm very familiar with this process, as I've been involved in pretty much all stages the past at several institutions. I've also represented Tier 1 banks to both The Fed and BOE, and have pushed back while they've been pushing, all the while getting pushed on by internal groups that wanted to shut down our business lines. Its a very interesting position to be in, and if you don't have firm grasp of all the issues and specifics, you'll get pushed aside very, very quickly as someone escalates right past you.

4) The output of the model is rigourous - as we used to say on the desk, "it is what it is". If you don't like the price, don't do the trade.

And that important distinction I kept alluding to?

Ok, just looking at what I've illustrated here, it's pretty easy to see why I keep telling folks here that banking is one of the most highly regulated businesses. So lots of folks get tired of all the process and procedure, kow towing to regulators and internal groups and start their own fund.

This is also very, very important as they can exploit an opp that most of the market has missed. Hence the prices will be off. Most banks wouldn't allow them to move in, at least not in a big way and very fast. Too much consideration and approval needed, by too many people. Or, if they can get the capital they can't get enough. Or don't have the leverage as the banks ALCO is focused elsewhere.

So they head off and do their own fund.

Clearly there are lots of eyeballs on a model, new or old, many, many people (both internal as well as external) "kicking the tires" so to speak.


"A couple of decades ago institutional investors could not park their money in commodities like they can today. "

Of course they could. Hedge Funds aren't new. It's mainstream knowledge of Hedge Funds that's new. People with a high net worth - rich people - always have had access to asset classes that retail money never considered or even knew existed in the past. BTW, that is happening even to this day.

Like economics, retail investing as a mainstream spectator sport is a relatively new phenomenon. Twenty years ago most folks didn't own stocks. Now ownership is very, very high as a percentage of middle class people in the US & UK.


"BTW, I should add that I consider your contributions here very insightful and informative, Mutant, and just because I disagree with your view on the economy (yield curve and 2 quarters of negative growth), that shouldn't be seen as a judgement of your other contributions here, which I think are light years better than most."

Ah many thanks for the compliment but there are sharper people than I commenting here.

But back to the yield curve and two quarters - and why I brought up working in the field - this is the generally accepted definitions.

Once again, if someone has alternative definitions or metrics then I'd like to see them. Hell, so would most of finance. Because Estrella did something ground breaking with his research, taking something that was common knowledge amoung folks working in the field, something that everyone knew and put a mathematical basis under it.

Look at it this way: someone posting on blogspot about an impending crash, without presenting data and a model we all can look at and poke and prod and understand just ain't gonna cut it when compared to a guy working at the New York Fed publishing a model with data. I haven't read too many criticisms of Estrella's work; lots of folks citing it and building upon it, but not a lot of folks saying he got it wrong.


yort -- "Yes, we have $50T of unfunded liabilities on the infinite horizon. "

Yort, you're almost there; that $50T of liabilities in present value according to the GAO. They've calculated this over a (IIRC) 50 year horizon, not infinite. Big difference, but it's even less if we look at Net Present Value.


pharm -- "Mutant: Is it possible that the fact that your 25 year career falls in a period when household debt as a proportion of GDP in the US expanded more than at any other time might skew your gut reactions to these issues?"

Oh of course - I'm human after all (although yort affords me super powers - ha!). But I haven't posted my gut reactions; my comments are driven by data and models and what I read in the academic literature on Finance and Economics to the greater extent, and my experience to a lesser extent. Most of my comments are heavily cited and I clearly break out my opinion. Compare and contrast with other comments, lacking citation. Those are gut reactions. I do make a solid effort to cite my comments when possible.


In any case, look at my profile and posting history; I study The History of Finance, and sometimes reference events going back centuries to help us understand current events. These things always go in cycles.

This FPP is a good place to start to understand my world view: "The year was 1978. The US Dollar was collapsing, inflation was beginning to surge, the American economy was on the brink of recession and many warned of the perils of easy money. Needless to say, Arthur Burns, 10th Chairman of the US Federal Reserve, had a tough job. ".

Like the slow cycles observed in asset prices (shares, property, commodities, etc), the overall economy does tend to move in cycles. Not precisely played out (now that would be boring!!) but variations on a theme.

Take a look at MeFi posts over the past year on this topic. Lots of doom and gloom and I've been fairly steady in my predictions we'd see a sharp spike in inflation, followed by a period of stagflation.

Inflation? Yep, but almost done. We're seeing inflation top out by Q1 2009, and we have people in the markets that share this view.

Stagflation? Yep, it's here now. When will the US economy shake it? As SeizeTheDay upthread pointed out until recently our models just couldn't encompass the possibility, theory didn't allow stagflation.

So I'm not sure and predicting such things isn't my expertise (I'm an Econometrician, not an Economist - I'm active in the equity and bond markets, do a little relative value trading, but most of my market activities are for cash flow).

So while I'm not sure when it will leave, Stagflation is almost certainly here.
posted by Mutant at 1:23 PM on August 17, 2008 [1 favorite has favorites]


^ that's an awfully long way to say "welcome to the 30's", Mutant ;)
posted by yort at 1:33 PM on August 17, 2008


The President and Chief Executive Officer of the Federal Reserve Bank of Dallas wishes to disagree with you.

Of course he would -- he's a Randian libertarian. But the problem is that $50T isn't real. It accounts for all current entitlements in the system, including Social Security and Medicare. And that money isn't money owed, at this moment, by the US government to any of its note holders or banks. It's owed to the people. The $9T is a hard number, owed right now.

It's the difference between a $90,000 mortgage and the possibility, in the future, that your parents are expecting you to fund their retirement community place when they decide to hang it up. If you file for chapter 11 tomorrow, the bank will file a claim for the $90K they're losing, but your parents will have no claim whatsoever. The bank can force a short sale of your house, but your parents can't.

And the other thing is that we can adjust Social Security costs very easily -- we can cut benefits and raise taxes. Canceling a T-bill, OTOH, is economic suicide.

So that's why the $50T number, though huge, doesn't accurately reflect reality. It's like me saying that my current debt load is well over my annual income because I have to price in my daughter's college costs in 14 years.
posted by dw at 1:45 PM on August 17, 2008


People with a high net worth - rich people - always have had access to asset classes that retail money never considered or even knew existed in the past. BTW, that is happening even to this day.

You're completely missing my point, which is that the ability to, with relative ease and low transaction cost, speculate in commodities while assuming that the world was decoupled (which is what happened in August of 2007), caused the yield curve to improperly be viewed as "normal". And as some others upthread have already acknowledged, last October the yield curve was actually kinked, meaning that short terms rates were higher than 2 year rates, which were lower than 10 year rates.

I think this conversation is moot, anyway. It's your type of conventional, "model-based" thinking that caused the securitization business to run amok and misprice risk. You can give me a 20 page thesis on how to build a model, but it won't change the fact that the assumptions are all made by error prone humans who sometimes have irrational expectations of the future.

The fact that you keep asking for peer-reviewed papers is proof of your "model-based" thinking. There are a variety of papers that have already compared this situation with both the Japanese crisis and the Depression, but they won't be complete, and peer-reviewed, until after the crisis is over. That's one of the points of being an economist; you can't "scientifically" prove your theory until you're in hindsight mode, at which point it appears obvious to everyone. You can't live in the books, Mutant. (And I find this absurd for me to say since I'm an academic by heart.) The economy is a system of irrational, moving parts and not everything will fit "a model". Talk to some high yield analysts and they'll tell you it's often more art than science. And they're right. (Which isn't to say that models are incapable of being useful; but no "book" or "model" is going to explain the next year or two of the global economy, because no one really knows. But clinging to outmoded beliefs like yours are akin to retail investor theory like "healthcare is a defensive stock".)
posted by SeizeTheDay at 1:51 PM on August 17, 2008 [2 favorites has favorites]


So from 2001 to 2008 net household wealth has increased just about $2.1T, while the Federal Gov't has borrowed $2.1T from the public and further cached away another $1.7T in the FICA surplus promises (ie future debt obligations).

Sustainable?

On this course, probably not. But tax increases, combined with putting those tax dollars towards desperately needed public works and a strong defense of the dollar, would fix it.

This puts us in Japan and Zimbabwe-scale levels of being up the creek.

For the thousandth time, THIS IS NOT ZIMBABWE.

The problem with Zimbabwe wasn't a large account deficit, or a speculative bubble, or anything else you all throw out.

It was 100% Mugabe. He poisoned the country's economy and created runaway inflation that makes 1920s Germany look like America's post-WWII recession. He drove out investors by becoming a petty, corrupt dictator. And as the world isolated ZIM more and more, he failed to get the message it was time to go.

The only reason Zimbabwe's dollars still have value is because they are from his personal fiat. His decisions and his neglect led them there. In a democracy, or even in an economically liberal but centrally-planned country like China, it would never get this bad. The level of inflation in ZIM is record-breaking; it's an economic rara avis.

Japan seems like a reasonable comparison to the US, but one should note that one thing is different here -- Japanese banks stalled for years on writing off bad debt; American banks are writing it off left and right. By clearing the bad, they're preparing the way for the good. Clearly we're seeing some lessons learned from Japan's malaise, so maybe there's some hope.

I'm surprised for all the Zimbabwe stupidity no one has mentioned Argentina's woes in the early 2000s. It's a far more plausible scenario -- years of deck-chair-rearranging and financial hand-waving means inflation gets wildly out of control (at its peak 30% a month), massive austerity program, massive economic restructuring, 2-4 years of economic suffering, and then things pick back up again. Argentina didn't descend into civil war, people weren't eating people, civilization survived. It was hellish -- massive unemployment, lost savings, all that -- but at the end of it, the country survived, economic growth returned, and people moved on. But I think the problem with Argentina's woes is that the end-story (the world does not come to an end) doesn't fit with the pessimist's sentiment.

Pointing to a worst-case scenario like ZIM just makes the pointer look like an idiot.
posted by dw at 2:11 PM on August 17, 2008


ob: Hitler CDO parody vid (NSFW titling, via Barry Ritholz)
posted by yort at 2:14 PM on August 17, 2008


The $9T is a hard number, owed right now

actually, $4.1T of that is trust fund holdings that the General Fund "owes" over the next 20+ years.

The problem with Zimbabwe wasn't a large account deficit, or a speculative bubble, or anything else you all throw out.

Actually, I was thinking of this chart, were public debt is 2x GDP.

If in fact our GDP is smoke & mirrored by a factor of 2 then our debt ratio would also put us right up there in the top 5.

Given our national savings rate, something's gotta give here.
posted by yort at 2:20 PM on August 17, 2008


I dislike my welfare being at the mercy of numbers inside a computer. It gets me all...stabby.
posted by turgid dahlia at 3:47 PM on August 17, 2008



Over a year ago we were having the debate here whether or not housing was going to go down... Not to put an overly dramatic point on it, but IMO Nouriel was offering the red pill, so to speak, for people willing to get see the actual mechanics of the bubble while we were still engulfed in it and believing the BS.

But John Paulson*, who actually matters, appears to be getting ready to buy financials. And being bullish housing in April of 2007 was clearly a contrarian position. People were clearly too slow to wake up, but don't pretend that the entire world thought all was right with housing in 2007(!) when KB, Centex, Pulte, and the rest were putting their tops in in mid-2005.

*I think he's wrong, as one of the cardinal rules of market downturns is that "whatever led the market down will not lead it out," but he's a tough man to bet against.
posted by Kwantsar at 3:57 PM on August 17, 2008


SeizeTheDay -- "You're completely missing my point, which is that the ability to, with relative ease and low transaction cost, speculate in commodities while assuming that the world was decoupled (which is what happened in August of 2007), caused the yield curve to improperly be viewed as "normal".

Well, much of the recent events in the market - the last year or so anyway - was driven by big funds shorting banks and going long oil. NOBODY was putting money back then in US Treasuries (now is another story, watch Gilts as well).

No, the recent pricing distortions weren't caused by institutional investors "suddenly" being able to purchase commodities as you've claimed. They've had that ability for decades. It was caused largely by big money looking for a place to park their cash (fleeing houses and before that dot coms). Nothing new there, and now they're moving into financials.

But aside from that - if you suspect it's not normal now, when do you think we'll see some "correct" structure?



"I think this conversation is moot, anyway. It's your type of conventional, "model-based" thinking that caused the securitization business to run amok and misprice risk."

No, actually it's a very good conversation - or more properly, illustration of you presenting some "conclusions" but then declining to substantiate your argument past the point of "opinion". But let's recap for a second, as I've asked some questions you haven't addressed:
  1. "... but Mutant, you've got to stop selling this as an indicator that the future is looking up. "

    Once again and with all due respect, what metric would you suggest we use instead of the yield curve - you claimed it was not an appropriate indicator; I simply asked what you thought we should use. You declined to answer.


  2. "The yield curve, right now, is a mess, ..."

    Well, I asked before but I'll ask again - how so? That yield curve is looking pretty healthy right now. It's NOT a mess. Really, this is Economics 100 here. Please reply, tell us why the yield curve is a mess and stick to the point 'cause I'm genuinely curious but for some reason you're not answering questions here.


  3. "...two consecutive quarters of negative growth or an inverted yield curve are hardly accurate measures of the reality out there. "

    Ok, same query as I advanced before. WE (meaning economics as a discipline) have a definition of a recession. YOU apparently don't agree with this. So how would YOU define a recession then? I'm open minded, willing to discuss, but can't accept pronouncements from on high as it were. How would you suggest we define a recession?



"The fact that you keep asking for peer-reviewed papers is proof of your "model-based" thinking. "

No, it's proof that I'm more quantitative and less willing to accept at face value, on trust.

Really, this is fundamental to the scientific method. Advance a theory, present some data, test the hypothesis, either accept or refute. I don't see any other way to progress. The alternative - what you seem to be suggesting - is largely hand waving, mostly trust.

And accepting conclusions ("yield curve is a mess", "two quarters of negative growth ... ") at face value as "conclusive" isn't a way to progress.



"There are a variety of papers that have already compared this situation with both the Japanese crisis and the Depression, but they won't be complete, and peer-reviewed, until after the crisis is over. "

Please cite these papers. I'm curious and would like to read them. As I'm sure you're aware, academics publish in distinct areas of research. Even if these papers aren't ready for publication or even peer review, surely there are prior papers, earlier research, perhaps by different authors, this new work is based upon? So help us out here.

And even so, comparisons work both ways; in the best case just because someone has studied the Japanese experience and compared it to the United States (I know of one paper that does), it simply doesn't mean the US will blindly repeat that period (the paper I'm thinking of was in fact commissioned by The Fed, but I'll let you run with this as it's your argument).



"You can't live in the books, Mutant. (And I find this absurd for me to say since I'm an academic by heart.) "

Thanks for the tip, but I make my living trading, have run client money in the past (2004/2005) and probably be doing so will again soon. I'm in the markets six days of the week, in the library probably as much but the point is once again, you're drawing conclusions (that I'm some kind of book worm, theoretical academic) which aren't supported either partially or in total by the facts. Sorry.


"But clinging to outmoded beliefs like yours are akin to retail investor theory like "healthcare is a defensive stock".)"

Now please help me here. WHICH of my beliefs are outmoded? And WHO, pray tell, issued the pronouncement that these beliefs were outmoded? Crap, I even give gold bugs their due, some element of truth to their thinking, but outmoded? Please help this atavism understand what believes of his beliefs are outmoded and who I can approach to appeal this decision.

'Cause I'm making money in this market. I hardly feel outmoded.


But going further, why are you taking offense if someone asks for proof of a statement? Of data and documentation for models? Why should any of us reading this take your opinion (which, because you decline to cite source, seems to be the case) as fact in these matters?

I tend to cite source and let people make up their mind. I don't know all the answers, but I do read a lot - journals, books, newspapers, magazines, even talk to lots and lots of market participants to find out what's going on - and always try to cite source.

But unfortunately you've made several statements that, when asked for source, you've totally ignored these all together reasonable requests and instead engaged in borderline personal attacks (e.g., "You can't live in the books, Mutant.") solely in what would appear to be an attempt to deflect attention away from your opinion-presented-as-fact. Nice.

So please, before we go off track any further, review the list of open queries and revert with some answers.


dw -- "Pointing to a worst-case scenario like ZIM just makes the pointer look like an idiot."

Agreed and excellent recap of some recent examples dw. And yet how many times have we seen this comparison of the United States to Zimbabwe on Metafilter?

Flip side to that question: how many mainstream economists, academically trained and operating in consensus with their peers, share this view? That the US could conceivably drift into a Zimbabwe type of hyperinflation?

It may not be zero (I certainly haven't conducted a poll) but it's damn close to zero.

Kwantsar -- "But John Paulson*, who actually matters, appears to be getting ready to buy financials. And being bullish housing in April of 2007 was clearly a contrarian position. People were clearly too slow to wake up, but don't pretend that the entire world thought all was right with housing in 2007(!) when KB, Centex, Pulte, and the rest were putting their tops in in mid-2005."

Lots of the big funds are now targeting a wide range of financials; banks at one end and direct exposure to subprime through to CDOs and other structured products at the other. Some are even forming operating companies and acquiring property in the hardest hit geographical areas. Many of these assets are now trading for $0.20, sometimes more / sometimes less on the dollar, and represent compelling buys.

Especially so after The Feds moved in to formally guarantee the GSEs. Not to mention deploying the new tools I mentioned earlier.

Watch for a pop upwards in financials.
posted by Mutant at 4:32 PM on August 17, 2008 [2 favorites has favorites]


Part of what made me roll on the floor laughing when I read in the first NYT link was at the end of page 2 when it was pointed out that economists predicting the future state of the economy are worse than meteorologists predicting the weather.

AS others have pointed out, Roubini got a prediction right. Congratulations to him, however that hardly makes him a good prognosticator. As the article itself points out on the top of page three, Roubini has been criticized for predicting disaster for many years.

It seems Stephen Mihm needs to lookup the "Scandal of Prediction".
posted by herda05 at 4:46 PM on August 17, 2008


As the article itself points out on the top of page three, Roubini has been criticized for predicting disaster for many years.

Disaster was delayed 2002-2006 by opening the mother of all credit bubbles. The economy of 2004-2006 was, to a very significant degree, driven by HUNDREDS of BILLIONS of dollars of home equity withdrawals per year, at its peaking accounting for TEN PERCENT of disposable income.

No superbear could have foreseen the Fed irresponsibly allowing the financial system to blow this bubble like it did just so the economy could get passed the 2004 elections in one piece.

We're now facing losses on the order of THE ENTIRE MARKET CAP of BANKING CORPS (~$2T).

IIRC the financials were responsible for 40% of the S&P's profits during the boom years of 2004-2006 and are now on the whole predicting at best very weak net earnings going forward.

We're looking at at least $500B and up to a TRILLION DOLLARS of losses still.

Poor Barings was taken out a decade ago for a measly $1.4B trading loss.

This still has the potential of ending . . . poorly . . . for everyone.
posted by yort at 6:11 PM on August 17, 2008


The economy is a recursive system; its past behavior is part of the data that determines future behavior. And each model developed becomes part of that past behavior and helps to determine the future behavior. This makes the economy inherently unpredictable over the long term by any fixed model. And it also means that it behaves chaotically; that is, it may appear to behave orderly for a while but it can spin out into wild fluctuations periodically because of recursion. Now, theoretically, it's all deterministic, but unfortunately you have to know the initial (or current) conditions exactly if you want to predict a chaotic system. And the further in time from when you know those conditions less than exactly, the more likely the behavior will diverge from predictions. So update those models often, econometricians!
posted by Mental Wimp at 6:33 PM on August 17, 2008


But I think the problem with Argentina's woes is that the end-story (the world does not come to an end) doesn't fit with the pessimist's sentiment.

Early 2000s Argentina is now the optimistic scenario for the U.S.?! That's some some scary shit.
posted by afu at 6:50 PM on August 17, 2008 [1 favorite has favorites]


If in fact our GDP is smoke & mirrored by a factor of 2 then our debt ratio would also put us right up there in the top 5.

If our GDP numbers are smoke and mirrors, then everyone's GDP numbers are. And in a sense, they are anyway, since every government wants to put their best face on their economic situtation. There is no international standard for auditing a national government's books, so there's no reason to trust the numbers, any of the numbers, much less rankings derived from those numbers.

But even if the quoted GDP numbers are wrong and it "puts us right up there in the top 5," well, that doesn't seem to say much. I mean, Japan's at #2, and they've had solid 2-3% growth the last few years. Italy's at #7, and they've been doing pretty well. Singapore is at #8, and I don't hear people saying they're about to crater into depression.

Yeah, Zimbabwe's at the top, and there's a brink-of-civil-war Lebanon and an isolated Sudan in the top ten. But again, that doesn't tell us much. Meanwhile, way down at #93 you have Mozambique, who is still one of the five poorest countries in the world in terms of per capita GDP, but their debt:GDP ratio is a mere 22% compared to the US' 60%.

A high ratio seems to suggest a lower bond rating, but aren't Japanese bonds typically rating between A1 and AA1? I don't think you could get an AA or better rating for a Mozambiquan bond right now.
posted by dw at 9:54 PM on August 17, 2008


Early 2000s Argentina is now the optimistic scenario for the U.S.?! That's some some scary shit.

No, not really. It's a real threat, for sure. But it's still pretty unlikely. If it were to happen, there would be a lot more things to worry about. The threats of stagflation and recession are far greater.

However, an Argentinian meltdown is still far, far, far more likely in the US than what's happened in Zimbabwe. The political and racial conditions that produced Zimbabwe's 1M% annual inflation do not exist in any western democracy, not even one governed by one of its worst executives in history.
posted by dw at 10:03 PM on August 17, 2008


Watch for a pop upwards in financials.

There's already been a bit of bounce off bottom, at least in banks without big clusters of rumors and short sellers looming around them like WM.

I would still be wary, though. My broker and I talked about this over lunch last month. A lot of good, conservative, regional banks are getting hammered, but neither of us thought they were good mid-term plays. There are too many risks in the whole sector right now.
posted by dw at 10:13 PM on August 17, 2008


dw: Sure. I should have expanded the point, which was that the 'National Debt' is not necessarily a fixed sum. Sure it's bounded at the bottom by the 'hard debts' on which default would probably bring about the end of the dollar as a currency (even if it's replacement also happened to be called the 'dollar'), but on top of that there's a pile of liabilities that the US gov has taken on, which will either have to be funded or defaulted on in some fashion.

Mutant: It's clear that all that risk management modelling effort that you talk about failed the banks completely this time around. It usually does of course, that's human nature! A bubble expands & no-one incorporates the possibility of the bubble deflating because it's a new! shiny! paradigm & everything in the garden is rosy. Bankers are just as prone to group-think as the rest of us.

I didn't mean to imply that you were unaware of financial history (indeed, I have read your profile), just that in some ways the last few decades the financial world has been driven by this ever upwards increase in personal debt in the background. I just wonder to what extent that has implicitly appeared as a factor in many economic models (both in the banking world & in academia) without being recognised as such.
posted by pharm at 12:45 AM on August 18, 2008


pharm -- "Mutant: It's clear that all that risk management modelling effort that you talk about failed the banks completely this time around. It usually does of course, that's human nature! A bubble expands & no-one incorporates the possibility of the bubble deflating because it's a new! shiny! paradigm & everything in the garden is rosy. Bankers are just as prone to group-think as the rest of us."

Well, failed the banks completely is debatable - some firms have done rather well in this mess, although they are few in number, to be sure.

That being said, I don't think it's totally fair to point the finger solely at Risk Management; anyone in that job is under tremendous pressure from all sides - from the traders who need to deal to make money at one end to regulators at the other with your internal ALCO folks in the middle. You get it from all sides, and it's a tough position to be in.

Regardless, and looking solely at Risk Management, there clearly were some breakdowns.

Something I've long (before the events of the past year) wished we had a better grip on is Liquidity Risk; I remember one of my bosses at DB in the late 90's expressing a great deal of frustration that he couldn't get funding to fully model out exposure our firm had due to changes in both instrument and counterparty liquidity.

Industry wide it seems that few people were looking at this factor, at least in quantitative detail, and it seems this omission persisted even as late as 2006 I'd suggest (my opinion only, no data to support but this is a general feeling gathered from working on that side of the business).

Liquidity Risk is still a fairly open area and it reminds me a great deal of Credit Risk back in say 2000 or so. At that time most of our research efforts to date had been focused on Market Risk. "Value At Risk" hadn't even been formalised, although many firms were indeed thinking alike, we were meeting at conferences and trying to put into place, codify the concept of what we now call VAR ("Value At Risk").

And once many of the larger challenges have been addressed in that part of Risk Management we (as a discipline) moved our attention to Credit. We saw a lot of work in Credit (and the usual approach - first research / journal papers, then conferences and finally hire a bunch of quants & IT guys to build a system) until recently when, with the widespread (i.e., forced) adoption of Basel II much of our efforts turned to Operational Risk. Lots of activity in Op Risk, especially now.

So I'd suggest (not making an excuse mind you, only offering up an explanation) that until the Basel Accord is widened to incorporate some obligation to include Liquidity Risk on overall regulatory capital calculations, we're just not gonna see much progress here. Sure, firms will take a pass and probably roll this out under the moniker "best practices", but unless all counterpartys are setting aside capital to guard against unforeseen losses due to Liquidity Risk you'll always have systemic exposure to this factor.

Oh! And lest anyone chime in on this topic - yes, I am aware that Liquidity Risk under Basel II slots into Pillar Two; Regulatory oversight. But the regulators are largely toothless in this regard, and until there is a mandated capital requirement (along with mechanisms to reduce this capital held to support on balance sheet positions) I just don't foresee a great deal of rigour to this part of Risk Management.

Which, of course, seems to have figured large in the events that kicked off about one year ago.



"I didn't mean to imply that you were unaware of financial history (indeed, I have read your profile), just that in some ways the last few decades the financial world has been driven by this ever upwards increase in personal debt in the background. I just wonder to what extent that has implicitly appeared as a factor in many economic models (both in the banking world & in academia) without being recognised as such."

Yeh, not a problem. And your latter comment is particularly interesting. Most models that I've seen or created deal with a firm or trading desks book, and don't look to macro factors. These are very insular, inward looking models that incorporate a distinct subset of all available external factors (e.g., bid side of a share price, volatility, mean, distribution of returns, etc) subject to distinct and largely idiosyncratic/firm specific assumptions (e.g., 90 day liquidation period, 99% confidence interval, etc).

I don't see how that could be modeled at the firm level; it (prevailing levels of debt load) is really something that (once again not pointing fingers!) really should be taken up by the regulators. Who, I have to say, seem to fade back into the woodwork all too often, considering their role in the financial ecosystem.

Presumably active oversight would see regulators actually increasing regulatory capital if and when needed.

Interesting comment though - hadn't really thought much about that as my viewpoint is admittedly focused, thus it myopic in some regards and, as I've said many times, I'm by no means an Economist (however there are some very sharp Economists here that don't seem to post much but I've chatted with via MeMail), more an Econometrician by education and profession.

Interesting point about debt loads though. Presumably it could be expanded to incorporate other factors e.g., anticipated changes in interest rates, currency rates, etc.
posted by Mutant at 1:51 AM on August 18, 2008


You're a more patient man than me, SeizeTheDay. I didn't even want to engage. Still don't, but here I am anyway *sigh*. Mutant: you make valuable contributions to economic threads, and your contrary point of view is welcome: but your seeming need to dominate the conversation, insistence that markets and macroeconomics cannot be seen through anything other than an extremely narrow (and imo debatable, but let's not go down that road) lens, coupled with a hypersensitivity to criticism is annoying, counter-productive and may be misleading many of the non-market types here to believe you're the one and only true authority on these matters.

As you yourself note, you are not: so why not try dropping the rhetoric down a few notches and accept the possibility that things can actually happen, and points of view can actually be valid, without being published in a peer-reviewed journal? I don't need to read Mechanics' Auto Monthly to tell me I'm witnessing a car crash. To further mix metaphors, you might as well be debating principles of astrophysics at a party with no other astrophysicists present, and then berating everyone for not having their red-shift tables handy. It's nonsense.

As you seem fond of asking others to frame their arguments in a manner of your choosing, I'll try the same approach: do me (and perhaps yourself) a favour and look up recent comments / speeches from Rubin or Gross or Feldstein or Roubini or Greenspan; even last weeks' sudden relative dovishness from the Feds' Fisher or Stern will do. I'd be very interested in your response to the substance of their arguments and the coherence of their views on the outlook for the US economy, as they seem somewhat more concerned than you do.

I'm respectful of your (opposing) viewpoint, and interested in it purely because it's different to mine. You can, at times, make cogent arguments. However, at others you can type something like this (from above) -

"If a recession were imminent, we'd start to see yields on the short end rise, and in the limit invert the yield curve as bond prices adjusted to factor in the anticipated rate cuts."

I hope that's a typo, because it's both incoherent and wrong. I haven't seen you state exactly what's so 'healthy' about the US yield curve, so I'll assume you're saying if it isn't inverse, then everything must be ok. This is also wrong - and as others have noted, the curve is a moving feast and where it is today is not where it's been, nor where it may be tomorrow. The trend is as important as the slope.

In any event, with real short rates negative, you cannot have an inverted curve without an apocalyptic economic collapse. Go look at Japan or the Skandies recent history. By the time you get the (second) inversion, it's too late. Really all you are saying is that everything is ok unless it's not, and if the Fed cuts short rates far enough, economic growth will return. This is a dangerously simple-minded stand to hang your hat on.

The very fact the Fed is resorting to extraordinary liquidity measures should tell you that they do not believe the answer is as easy as 'steepen yield curve, all ok'. By the time we do or don't see your 'indicator' play out, the game is over. Further - as you know, the curve steepened sharply from late last year, and you couldn't point to anything particularly positive from a general market or economic perspective from that point on. For all that, I do agree it makes for a useful mid-term rule of thumb, and that we'd rather see long rates over short to allow the banks to recapitalise.

Ugh. I'm still talking, and I promised myself this would be quick. G'night.
posted by bookie at 3:13 AM on August 18, 2008 [1 favorite has favorites]


"... but your seeming need to dominate the conversation, insistence that markets and macroeconomics cannot be seen through anything other than an extremely narrow (and imo debatable, but let's not go down that road) lens, coupled with a hypersensitivity to criticism is annoying, counter-productive and may be misleading many of the non-market types here to believe you're the one and only true authority on these matters. But as you yourself note, you are not: so why not try dropping the rhetoric down a few notches and accept the possibility that things can actually happen, and points of view can actually be valid, without being published in a peer-reviewed journal?"

Well, I have to say I feel strongly the first comment - "may be misleading many of the non-market types here to believe you're the one and only true authority on these matters." is way, way off base. Even in this thread I've posted that I don't know all the answers (as you yourself acknowledge), and many times on MeFi I've posted that I only have a viewpoint, albeit a viewpoint that I can back up with citations and data, and perhaps some relevant experience. So no sensitivity to criticism (feedback is fine), but I've absolutely never (AFAIK) posted anything even remotely implying I'm such an authority.

Now compare and contrast that with the assured opinions presented-as-facts, not just in this thread (there is some, not much to be truthful), but overall in the past in the finance and economics threads. No citations (sure, the occasional news story or blog) to journals or books or other generally acknowledged, authoritative sources. No data either, but what the hell - why let facts get in the way of good fiction?

Sorry, but I've never posited myself as "the one and only authority" and anyone that believes I am is just as likely to believe the various internet economists that post opinion-presented-as-fact on MeFi as well as other web sites.

I frequently mention that I don't know and other than remain silent on a topic I'm knowledgeable on (all too often in the face of totally wrong or misleading information being posted) I don't know what else I could do or present.

Once again, compare and contrast; I rarely post on topics other than Finance or Economics, and then only in the narrow subsets that I've got expertise and (hopefully) can add value to. Some folks, however, are positively dazzling in their breadth of knowledge and expertise, authorities on pretty much everything. I'm not like that. I'm narrowly focused.


In any case, I've got an open mind, but feel there should be some evidence to back up comments presented as fact. Otherwise we're discussing opinion and that's fine as well. In fact there is lots and lots of opinion-presented-as-fact in the finance and economics threads. I try not to do that.

All this boils down to I've been presented with some statements (e.g., "the yield curve is a mess", but there are others) and I've asked for clarification. That's not out of line at all.

Truth be told, I was indeed just testing, and was hoping to see some argument presented discussing technical factors on the short end or as you pointed out the impact of negative real (and then we'd have an interesting conversation), however this followup was lacking.

But someone can't just post opinions and expect them to be accepted at face value as facts, without question.

Nor can they attempt to divert attention away from reasonable queries by questioning the individual who raised the query -- "outmoded beliefs". What is that all about anyway?

If anything the field has improved since the late 80's / early 90's, we've moved away from handwaving, opinion-presented-as-fact, more towards quantifiable results, results that can be duplicated and proven by peers. That approach, which I openly admit I embrace, is by no means outmoded (of course it may well be sometime in the future ... ).



"If a recession were imminent, we'd start to see yields on the short end rise, and in the limit invert the yield curve as bond prices adjusted to factor in the anticipated rate cuts."

"I hope that's a typo, because it's both incoherent and wrong. "

Whoops! It is a typo (not sure if its incoherent though). The prices on the short end would rise and the yields would fall.


"I haven't seen you state exactly what's so 'healthy' about the US yield curve, so I'll assume you're saying if it isn't inverse, then everything must be ok. This is also wrong - and as others have noted, the curve is a moving feast and where it is today is not where it's been, nor where it may be tomorrow. The trend is as important as the slope."


Well here we are at another point that I raise often here on MeFi - I'm not saying that an inverted curve is "normal" - the literature and the generally accepted definitions of economics say this is so. It's not my theory. Read Estrella's paper I linked above. As I commented before, that was something that everyone knew but Estrella quantified and expressed yield curve inversions, as a function of time and spread, as a probability of recession.

If someone says an upward sloping yield curve is not normal then I'm perfectly within my right to ask why and, further, to reject an assertion (if it were offered, it wasn't) that personal opinion should dominate peer reviewed results, theories that are taught should one study the topic.

Of course negative real does indeed change things. How? I'm not sure, I wish someone would post a citation we all could read. But opinions that negative real changes things? Intuitively correct, just not sure how much and to what effect. Do negative real rates invalidate Estrella's work? Has anyone followed up on this work, looking at a negative real term structure? In the absence of answers to these questions we really do have to take whatever results we have as facts, unless otherwise challenged.


In terms of a moving yield curve; yes, I am aware of that it changes. My twitter stream will note that I look at the yield curve often (more often that Summize can see apparently see, even though I don't twitter it every day), every day first thing in fact (then gold & oil and few other commodities ... ).

Simple fact is we haven't seen too many significant changes as of late. Sure, nice parallel shift across the term, but no twists nor humps nor (heaven forbid!) an inversion. For a while there was an exploitable niche at 3M/5Y, but no opps that we can see at present. Of course it can and will change though. I think we agree there.

But the yield curve now? As a predictor of future recessions? Upward sloping, longer term rates higher than shorter term, looks pretty good.


"I'll try the same approach: do me (and perhaps yourself) a favour and look up recent comments / speeches from Rubin or Gross or Feldstein or Roubini or Greenspan; even last weeks' sudden relative dovishness from the Feds' Fisher or Stern will do. I'd be very interested in your response to the substance of their arguments and the coherence of their views on the outlook for the US economy, as they seem somewhat more concerned than you do."

Well I do read a fair amount of their writings (not everything and certainly no Roubini). Sure, I'm aware that they are concerned, but interesting you mention Gross who is now bullish on the US Dollar. He's not taking that position because he believes there is an imminent US economic collapse. In fact he was bearish on the greenback for perhaps two years, (IIRC) starting from Q1 2006 until earlier this month.

And The Fed officials?

Well, I always tell people don't listen to what The Fed says; what what The Fed does.

Talk is cheap (I should know, I'm loquacious when it comes to finance but its my focus and a field I love). Action costs. Wait for The Fed to act and then we'll know what they are really thinking or are concerned about.
posted by Mutant at 4:51 AM on August 18, 2008 [3 favorites has favorites]


Presumably active oversight would see regulators actually increasing regulatory capital if and when needed.

I have seen this suggested by various people: some kind of increase in the capital that the banks were required to hold on deposit with the FED/other central banks during 'good times' would act nicely as a counter-cyclical weight.

Unfortunately, I suspect that the banks would be very resistant to it & would almost certainly lobby to remove the restriction on their lending during the good times, which could last decades or more.

One obvious example of this kind of process in action was the repeal of the Glass-Steagall Act (especially the parts which prevented an investment bank from owning other financial institutions — a response to the 1929 collapse IIRC) in 1999. Interestingly, that's about the right time for everyone who had been trained up by bankers who had worked during the great depression to have retired.
posted by pharm at 4:55 AM on August 18, 2008


NB. On the topic of internal financial models Mutant, I happen to know (although I can't provide a reference offhand: it's probably buried somewhere in the calculatedrisk archives) that the models used by the ratings agencies to grade US RMBS (& CDOs based on them) took as one of their base assumptions that mean nominal US house prices would never fall. They never had in the past, so they never would in the future!

That's the kind of "can't see the wood for the trees" assumption that I'm thinking about.

some firms have done rather well in this mess, although they are few in number, to be sure.

I think that the ones that have done well have done so mostly by taking short positions haven't they? Hence their gains are someone else's losses & make no net contribution to the financial position of the industry as a whole. I'm sure there are some institutions out there that have avoided the whole mess entirely though & good luck to them.

The general point about liquidity risk is well taken. It's just really hard to insure against: by defintion if you need to call on in, everybody else probably does too. (Ref. the business models of the monoline insurers.) Which means I guess that the right place to think about liquidity risk is the central banks. To do so they presumably need full disclosure from the investment banks / hedge funds etc of their positions. Is that going to happen? I guess if it's the price of access to the central bank for liquidity in times of need then it will.
posted by pharm at 5:18 AM on August 18, 2008


(sure, the occasional news story or blog)

Don't know why you're so down on blogs. Dude, this *is* a blog you're writing on, after all. Compare the Estrella pdf you linked to this blog post for example. The blog post leaves us to do more in the way of verifying its accuracy perhaps, and the pdf leaves us to do more of the application to present circumstances. I'm not sure which is more useful in the context of a casual internet discussion, but to me it's notable that the blog post seems to give us a better idea, at a quick glance, of the degree of significance of its conclusions, thanks to the easy-to-read scatter plot. Also it is interesting to note that the yield-curve inspired optimism there came in June 2007.
posted by sfenders at 6:27 AM on August 18, 2008


Its been patently obvious to people with a shred of common sense that this meltdown was coming. Exact timing (was) is the tougher question. But for those of you with the rose colored delusions... luckily for you, you can put your money where your mouth is on this topic. Go invest your money and ignore Roubini.
posted by mano at 11:46 AM on August 18, 2008


pharm -- Unfortunately, I suspect that the banks would be very resistant to it & would almost certainly lobby to remove the restriction on their lending during the good times, which could last decades or more."

Yes, they most certainly would contest such proposals and lobby - vigorously would be an understatement - against any such a requirement.

I'm willing to bet that if Basel II were extended to require regulatory capital against expected liquidity shortfalls we'd see: first, the emergence of yet another class of derivatives that would facilitate the trading of this exposure (I'm not sure I'd be in favour of this), and secondly, far aggressive utilsation of off balance sheet vehicles than we've seen to date (I'm not in favour of this either). So there you go. Very interesting problem though.

Curious, but since you raised that point I took a quick look through Athens & SSRN, and it seems some folks are starting to look at Liquidity Risk from the perspective of adopting lessons learned from the markets of Developing Nations. Which by itself is a fascinating approach, and immediately obvious in retrospect (like all good ideas it would seem) as liquidity is something that the fund managers operating in Developing Nations have not only long had to deal with, but have evolved sufficient techniques. Will be interesting to see how this shakes out.

In any case, last February BIS published what looks to be a good paper on the subject (haven't read it yet, link was mailed to me this AM after my Basel II comment upthread), entitled Liquidity Risk: Management and Supervisory Challenges. A very interesting take away after a quick skim (off page 22) :

"The loss of investor confidence in a wide range of structured securities markets led to risks flowing on to banks’ balance sheets. The initial shock in credit markets was transmitted through a fall in asset market liquidity, which led to an increase in funding risk. Money markets tightened internationally as banks built up liquidity to meet contingent claims or in anticipation of having to meet such claims. Asset managers also stockpiled liquidity to guard against increased redemption risks. The combination of liquidity and balance sheet pressures and heightened credit concerns made banks reluctant to provide others with term funding."

Now that is a rather nice summary of the the past year and in one paragraph no less.


"NB. On the topic of internal financial models Mutant, I happen to know (although I can't provide a reference offhand: it's probably buried somewhere in the calculatedrisk archives) that the models used by the ratings agencies to grade US RMBS (& CDOs based on them) took as one of their base assumptions that mean nominal US house prices would never fall. They never had in the past, so they never would in the future!"

Wow wow holy cow I'd really love to contribute in detail to your point (not contrary, mind you), but, having worked for a ratings agency I hope you understand its in my best interests to self-censor on this topic at the current time, especially so considering what's going on now.

That being said, the differences in EDF (expected default frequency) we saw when looking at the output of models used to rate financial products at the agency level, and the models customised then adopted and used by our clients for the same asset class was both surprising and unexpected. What we knew was these differences weren't (largely) attributable to either model calibration or the selection of discriminatory factors. When I left they were still debating the finer points, so I'm not sure how it all shook out. Internally, at least.


sfenders -- "Don't know why you're so down on blogs. Dude, this *is* a blog you're writing on, after all. "

Yes of course and a fine blog this is!

But in any case I'm not totally down on blogs, however we do have a question of believability as you pointed out. Peer reviewed journals, by their very nature, will always have a much higher signal to noise ratio than a random blog and will be far more believable (at face value) and authoritative.

And after all, one can find a blog providing supporting evidence to pretty much any economic theory, no matter how extreme or poorly regarded by mainstream. Of course you did well to select Econbrowser as your example, which is actually pretty damn good and I have looked at it (as well as few others) in the past. Some are good. In any case I do agree their blog post is more accessible than a .pdf of Estrella's work.

So not against blogs. But as a definitive, authoritative information source most (not all) are seriously lacking.
posted by Mutant at 11:49 AM on August 18, 2008


Wow wow holy cow I'd really love to contribute in detail to your point (not contrary, mind you), but, having worked for a ratings agency I hope you understand its in my best interests to self-censor on this topic at the current time, especially so considering what's going on now.

I can imagine.

I did a little googling: this post at Naked Capitalism links to a paper from the Hudson Institute which quote a Fitch conference call where they admit that they assumed national HPI of 'mid single figures' and then failed to update their ratings when the true values in 2005/6 were in fact negative (if only slightly so).

Thats the best reference I can find at the moment.
posted by pharm at 2:08 PM on August 18, 2008


Classy response Mutant, nice one. Mea culpa for the crankiness. Full moon, long weekend, zero sleep. Trade well.
posted by bookie at 3:32 PM on August 18, 2008


Wow wow holy cow I'd really love to contribute in detail to your point (not contrary, mind you), but, having worked for a ratings agency I hope you understand its in my best interests to self-censor on this topic at the current time, especially so considering what's going on now.

Crap, now I'm really curious.
posted by stavrosthewonderchicken at 10:53 PM on August 18, 2008


bookie -- "Mea culpa for the crankiness. Full moon, long weekend, zero sleep."

No worries bookie and upon reflection I am without a doubt a tad bit too chatty in these threads, but in my defense I'll just say I'm not working, my Kats won't talk finance to me, I don't watch no TV and I'm looking for diversions to keep me from writing my dissertation.

So its MetaFilters fault I am the way I am.
posted by Mutant at 1:53 AM on August 19, 2008


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