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Soros on the Banking Crisis
November 10, 2008 12:42 PM   Subscribe

Soros on the banking crisis:
"A deep recession is now inevitable and the possibility of a depression cannot be ruled out. When I predicted earlier this year that we were facing the worst financial crisis since the 1930s, I did not anticipate that conditions would deteriorate so badly." - Soros lays out some ideas about what can be done to fix the markets ... Planet money had another nicely done piece on the debacle last Friday.
posted by specialk420 (79 comments total) 10 users marked this as a favorite

 
I put all my money in cartons of cigarettes, dried meats, and shotgun shells, so I'm doing just fine.
posted by Astro Zombie at 12:45 PM on November 10, 2008


You can't ferment meat. Well, you can, but it's not going to get you drunk. You might want to diversify into some oats and yeast.
posted by cjorgensen at 12:50 PM on November 10, 2008


> I put all my money in cartons of cigarettes, dried meats, and shotgun shells, so I'm doing just fine.

One word: scurvy.
posted by The Card Cheat at 12:52 PM on November 10, 2008


I appreciate your tips. Going out now to by some limes and liquor.
posted by Astro Zombie at 12:53 PM on November 10, 2008 [8 favorites]


Hey pick me up some braaaaaains while you're out there.
posted by Mister_A at 12:55 PM on November 10, 2008 [2 favorites]


Wow... A link from the future...
posted by Djinh at 12:59 PM on November 10, 2008


Ok, snark aside, I listened to that Planet money piece over the weekend. And read about a further IAG bailout (or restructure if you prefer) and I just keep getting madder about this stuff.

"David Kestenbaum starts it off with a story about school districts that bought some of the worst stuff on Wall Street."

Why are school districts buying anything? Let alone parking the cash all in one place.

I'm not for capital punishment, but rather than a bailout I think some of these people should be seeing the insides of a jail cell for being criminally stupid.
posted by cjorgensen at 1:00 PM on November 10, 2008 [1 favorite]


Oats? What the hell are you going to make out of fermented oats?

Astro Zombie: I put all my cash into apple juice and malt, so I've got plenty of cider and beer to trade when I need some jerky and shells. MeFi mail me sometime before the power plants go offline and we can trade.
posted by rusty at 1:08 PM on November 10, 2008 [1 favorite]


Oatmeal stout, I should think.
posted by echo target at 1:10 PM on November 10, 2008 [2 favorites]


I have an idea: LET'S SCARE THE CONSUMERS AS MUCH AS POSSIBLE. Then tomorrow we can run a story about how the economy is tanking because consumers are scared. I know it's bad, but, this "Great Depression" talk isn't helping anybody.
posted by TrialByMedia at 1:13 PM on November 10, 2008


I'm not for capital punishment

I would also like my investments to increase in value.
posted by oaf at 1:21 PM on November 10, 2008 [2 favorites]


LET'S SCARE THE CONSUMERS AS MUCH AS POSSIBLE.
posted by TrialByMedia


Eponysterical.

A friend and I were considering some sort of meat beer. I think the idea was to start with a normal brewing process and add some sort of meat either to the wort or the primary. I think some sort of preserved meat - bacon or maybe jerky - would work best.

We were drunk at the time, though.
posted by backseatpilot at 1:22 PM on November 10, 2008


add some sort of meat either to the wort or the primary

Well you'd have to chill it and skim off the fat, so that would be unpleasant, at least.
posted by uncleozzy at 1:25 PM on November 10, 2008


I have an idea: LET'S SCARE THE CONSUMERS AS MUCH AS POSSIBLE. Then tomorrow we can run a story about how the economy is tanking because consumers are scared. I know it's bad, but, this "Great Depression" talk isn't helping anybody.
posted by TrialByMedia at 4:13 PM on November 10


In the last two weeks I have seen store closing sales and going out of business sales for:

a national consumer electronics chain (bankruptcy)
a regional high end electronics chain (bankruptcy)
a mid-range regional furniture chain (store closing)
a high-end regional furniture chain (bankruptcy)
a national housewares chain (bankruptcy)
a mid-range jewelry store (store closing)

And that's just within a ten-minute driving radius, during the Christmas season. I can't imagine how many businesses on the margin are hoping that Christmas will carry them through. I expect that come January-February, we will see a bloodbath.

Consumers should be scared. Burying your head in the sand won't help anything either.
posted by Pastabagel at 1:29 PM on November 10, 2008 [5 favorites]


I'm not sure fat washing would work as well at 4-5% alcohol as it does in the liquor context. Although maybe with something ridiculous like the strongest Dogfish Head IPA it might happen. Otherwise you'd just end up with a mess that looked like vomit because of making a great/terrible food choice after last call.
posted by Inspector.Gadget at 1:32 PM on November 10, 2008 [1 favorite]


One man's depression is another man's buying opportunity.
posted by mullingitover at 1:32 PM on November 10, 2008 [4 favorites]


A Quiet Windfall For U.S. Banks: With Attention on Bailout Debate, Treasury Made Change to Tax Policy
posted by Tehanu at 1:37 PM on November 10, 2008 [2 favorites]


You can't ferment meat.

One of the oldest brewing/cooking/screwing around with the wymen book I can think of:
http://www.gutenberg.org/etext/16441

Says that yes, yes you can.


TO MAKE COCK-ALE

Take eight Gallons of Ale; take a Cock and boil him well; then take four
pounds of Raisins of the Sun well stoned, two or three Nutmegs, three or
four flakes of Mace, half a pound of Dates; beat these all in a Mortar, and
put to them two quarts of the best Sack; and when the Ale hath done
working, put these in, and stop it close six or seven days, and then bottle
it, and a month after you may drink it.
posted by rough ashlar at 1:42 PM on November 10, 2008 [5 favorites]


Why are school districts buying anything? Let alone parking the cash all in one place.

With cuts in property taxes and taxpayers regularly voting "no" on school bond issues, I suppose some school districts felt a lot of pressure to do something to create the revenue necessary to make needed improvements. Or just to make ends meet.
posted by Thorzdad at 1:43 PM on November 10, 2008 [2 favorites]


And that's just within a ten-minute driving radius, during the Christmas season. I can't imagine how many businesses on the margin are hoping that Christmas will carry them through. I expect that come January-February, we will see a bloodbath.

Consumers should be scared.


Reminds me of something I saw today:

Louise Wright never thought she'd be lining up at a Chicago hotel to sell her son's long-neglected coin collection and the silver utensils she inherited from her grandmother to a company set up in a conference room for a few days to buy such belongings.

"I'm embarrassed," says Wright, 59, a retired nurse, "but not too embarrassed to do this. I have no use for these things, and to be honest, with Christmas coming up, I need the money."


I IRL facepalmed.
posted by TheOnlyCoolTim at 1:45 PM on November 10, 2008 [1 favorite]


cjorgensen : Why are school districts buying anything? Let alone parking the cash all in one place.

They were buying stock and indices to fund retiree pensions, as required by the contracts they have with the various unions representing their employees. Most don't have people on staff to do the investing, so they used investment advisors.....
posted by jlkr at 1:46 PM on November 10, 2008 [1 favorite]


Beer goes bad. Feed corn or malt and a still, and you have a trade good that's medicinal, keeps well for decades, and can be sold for more money the longer you have it in your inventory. (Resist the urge to use fruit mash unless you have a lot of experience in cidermaking - apple palsy kills.)
posted by Slap*Happy at 1:47 PM on November 10, 2008 [1 favorite]


I invested all my skill points in learning to use Power Armor, plus I have a spare water chip, so Astro Zombie, your jerky will be mine before long!

Not that I really need it. I jerk my own beef at home anyway.
posted by turgid dahlia at 1:48 PM on November 10, 2008 [2 favorites]


Most don't have people on staff to do the investing, so they used investment advisors.....

And they invested in AAA-rated debt. They were behaving responsibly under the best information they could get. The rating agencies fucked them.
posted by mr_roboto at 1:54 PM on November 10, 2008 [3 favorites]


cjorgensen: Why are school districts buying anything? Let alone parking the cash all in one place.

Listen to the podcast instead of asking a question it answers in the first few minutes.
posted by mkultra at 1:54 PM on November 10, 2008 [1 favorite]


I read the Soros article. It follows this basic outline:

1. Re-cap of the recent financial crisis history (worth reading for that alone) ending with a dire prediction things are worse than he feared.
2. An explanation of his theory of reflexive markets (see his book for the full account)
3. How reflexive markets created the current crisis.
4. A plea to regulators not to over-react with too much regulation and to take into account the ideas of reflexive theory when enacting new regulation.

Since I believe Soros is advising Obama he is basically outlining for the public what he probably will or has told the new administration.
posted by stbalbach at 1:55 PM on November 10, 2008


Not that I really need it. I jerk my own beef at home anyway.
posted by turgid dahlia at 3:48 PM


heh.
posted by birdherder at 1:57 PM on November 10, 2008


Buddy of mine has a lot of investments. I mentioned that he must be taking a beating in the market. He said he wasn’t.
I asked why. He said: “A beating you can maybe get up and crawl away after.”
Kinda scary for those of us who don’t have that kind of money. I mean, I’m thinking, if he’s getting his ass kicked, I don’t stand a chance.
Although Soros pretty much has F.U. money. So either way. And he’s got a book to plug.

What’s aggravating is I just pretty much save my money, put it in T-bills or triple A rated bonds (municipal or schools), and I’m going to get hosed? I’ve got fiscally conservative friends going “Jesus, Smed, what’re you stuffing it in your matress?”

I just want to work and make a living man. The fact I don’t chase bucks doesn’t mean I’m stupid, just means I have other priorities. Like y’know, spending more than 10 minutes with my kids after work.

Whenever there’s a winner there’s a loser. So if the market tanks, there’s a flaw in the system, whatever - why’s it feel like me and everyone else are the ones who are losing when, hell, we weren’t even playing the game.
Language like this is just irritating:
“In view of the tremendous losses suffered by the general public, there is a real danger that excessive deregulation will be succeeded by punitive reregulation”

Well...so? Regulators are susceptible to corruption, eh? So don’t regulate too much? So the greedy sharks that started this, they’re not susceptible to corruption? Who the hell’s doing the lobbying in the first place?

Seems to me a lot of the manuevering going on - from whatever political sphere - is geared towards how to keep doing business.
Like it boils down to not ‘if,’ but only ‘to what degree’ we need to screw U.S. taxpayers. I'm not saying I know anything here, but this is what it sounds like on the ground.

Still, this meat beer investment sounds lucrative.
posted by Smedleyman at 1:58 PM on November 10, 2008 [5 favorites]


I have no use for these things, and to be honest, with Christmas coming up, I need the money.

I'll bet she's selling her grandmother's silver set to buy her husband a new chain for his antique pocket watch, and he's selling his antique pocket watch to buy her a display case for the silver set.

These may be troubling times, but it does help remind us of the true meaning of Christmas: buying largely unnecessary retail consumer goods for family members, even if it means going into debt or selling your own prized and irreplaceable possessions.
posted by burnmp3s at 2:00 PM on November 10, 2008 [17 favorites]


rough ashlar: "You can't ferment meat.

One of the oldest brewing/cooking/screwing around with the wymen book I can think of:
http://www.gutenberg.org/etext/16441

Says that yes, yes you can.
"

That's really impressive, I don't think I have ever heard or seen a meat-based alcoholic drink before.
posted by stbalbach at 2:03 PM on November 10, 2008


Listen to the podcast instead of asking a question it answers in the first few minutes.

Hard to believe, but some people who are sitting in front of the internet can only read it. Yay text.
posted by sageleaf at 2:17 PM on November 10, 2008 [2 favorites]


I have an idea: LET'S SCARE THE CONSUMERS AS MUCH AS POSSIBLE. Then tomorrow we can run a story about how the economy is tanking because consumers are scared. I know it's bad, but, this "Great Depression" talk isn't helping anybody.
Yes, the responsible thing to do would be to tell everyone everything will be fine and they should spend all their money. Preferably on speculative stocks.
What’s aggravating is I just pretty much save my money, put it in T-bills or triple A rated bonds (municipal or schools), and I’m going to get hosed? I’ve got fiscally conservative friends going “Jesus, Smed, what’re you stuffing it in your matress?”
Huh? If you're money is safe how are you losing? In fact, you're winning since the value of the dollar is going up as more and more people are hording cash.
posted by delmoi at 2:19 PM on November 10, 2008


I don't think I have ever heard or seen a meat-based alcoholic drink before.

You're obviously not familiar with Hamm's. Hardy har.

posted by Rykey at 2:24 PM on November 10, 2008


A friend and I were considering some sort of meat beer.


Pork Soda.
posted by spirit72 at 2:27 PM on November 10, 2008 [3 favorites]


A deep recession is now inevitable and the possibility of a depression cannot be ruled out.

After reading the article, I'm not so sure Soros is actually predicting a depression. Rather, he is admitting that, because we're in uncharted territory, it is impossible to rule out a depression from happening.

It reminds me of when my son was born. A couple of days after birth he developed both bacterial *and* viral meningitis (we wouldn't know that until later), and some sepsis thrown in for good measure. As a result, he developed a cascading failure in his ability to produce blood platelets. The doctor was unsure what to do about the situation. There just wasn't enough time to tell whether or not it was indeed bacterial meningitis that was the problem, so while prescribing antibiotics might save the situation... my son's death could not be ruled out. It was a terrible, stressful time, but we clung to hope, and the doctor did everything he could to save my son, which, in the end, he did.

But Soros isn't predicting a Depression, but if policymakers make some wrong moves, well, it can't be ruled out.

So just keep repeating "Yes, We Can!"
posted by KokuRyu at 2:28 PM on November 10, 2008 [1 favorite]


I have the first 7 Foxfire books around here somewhere. We should be able to live on squirrels and deer for a while until I get the still built. Then it's just banjo and booze for the rest of my life.
posted by RussHy at 2:28 PM on November 10, 2008 [1 favorite]


I have an idea: LET'S SCARE THE CONSUMERS AS MUCH AS POSSIBLE. Then tomorrow we can run a story about how the economy is tanking because consumers are scared. I know it's bad, but, this "Great Depression" talk isn't helping anybody.

It's funny how you can substitute "Iraq War" for "Depression" and the logic remains intact.
posted by Pope Guilty at 2:31 PM on November 10, 2008


"I don't think I have ever heard or seen a meat-based alcoholic drink before."

You still haven't. Meat doesn't contain enough sugar to ferment. What you have there is beer with meat in it. Really more of a beer-based chicken soup. The raisens and dates might ferment more, but likely not enough to just make it a bit fizzy.

Again - Not fermented meat. Rather, very gross chicken soup.
posted by Ragma at 2:32 PM on November 10, 2008 [1 favorite]


Ah crap. I guess this means I should cancel my money burning party this weekend.

Better yet, I think I'm going to invest time in making bacon beer. I'll get the meat to ferment, just you watch.
posted by rand at 2:36 PM on November 10, 2008 [1 favorite]


> I don't think I have ever heard or seen a meat-based alcoholic drink before.

It's made with chicken. That counts as a vegetable in some parts of this country.
posted by ardgedee at 2:45 PM on November 10, 2008 [1 favorite]


Meat doesn't contain enough sugar to ferment.

Sweet meat has plenty of sugar, but it's not meat. Sweet bread is meat, but has no sugar.
posted by stbalbach at 2:46 PM on November 10, 2008 [1 favorite]


While we are on the topic here is a more optimistic post by one of personal favorites Umair Haque (perhaps many have already seen it): The great rebalancing, a vastly more depressing: Lessons from the collapse of the Soviet Union and finally Satyajit Das's blog.
posted by specialk420 at 2:46 PM on November 10, 2008


the possibility of a depression cannot be ruled out.

OK, that does it, the time is ripe, I'm pursing my dream of becoming a wandering balladeer. The fact that I can neither sing nor play guitar is of minor importance.
posted by jonmc at 2:48 PM on November 10, 2008 [1 favorite]


Bacon Vodka.
Yes, but no, but yes.

And yes, it is delicious.
posted by daq at 2:56 PM on November 10, 2008


The fact that I can neither sing

Never stopped Bob Dylan.

nor play guitar

Arlo claimed that with the mouth organ he made it through the last unregulated markets correction.


Today I've been passing about this link - http://www.prout.org/ Rather than worry about the global economy and whatever they are doing - go forth with your own economy.
posted by rough ashlar at 2:57 PM on November 10, 2008


OK, then.

*packs poke, hops boxcar*

(ok, I really just grabbed my backpack and hopped on the N train. Baby steps, baby steps)
posted by jonmc at 3:08 PM on November 10, 2008


Nor spell.

The verb "to purse" is rarely used nowadays. Much underused.

I too will purse a musical career - after I drink jonmc under the table.
posted by Nick Verstayne at 3:14 PM on November 10, 2008


after I drink jonmc under the table.

Smile when you say that, partner. :>
posted by jonmc at 3:19 PM on November 10, 2008


Oh, I'm smiling, pal. I'm also holding aces and eights, so I should be fi......

Oh shit.
posted by Nick Verstayne at 3:25 PM on November 10, 2008 [3 favorites]


I just wanted to say that I find it greatly uplifting that, as the result of a post about George Soros and the economic crsis, a discussion about meat-based alcoholic beverages has followed. Thank you, Metafilter.
posted by Marisa Stole the Precious Thing at 3:30 PM on November 10, 2008 [3 favorites]


Hell, I've been brewing Mead for a few years now, I'm set except I need to learn how to raise my own bees now. I think I'll give that "WHITE MEATHE" a try, sounds good.
posted by dibblda at 3:36 PM on November 10, 2008



Sweet meat has plenty of sugar, but it's not meat. Sweet bread is meat, but has no sugar.


This has always confused me. However, mincemeat contains sugar, liquor AND oftentimes meat, so it's sort of a win/win situation if you can get past the taste, which can be sort of a problem for people (me).
posted by thivaia at 4:27 PM on November 10, 2008


I have a hard time listening to Soros, a man who made his fortune attacking the currencies of vulnerable nations and plunging their economies into crisis. Though I guess he would have a unique perspective. Krugman on Soros
posted by Astragalus at 4:34 PM on November 10, 2008 [3 favorites]


You have a hard time listening because he plays the game, or because he plays it well?

(I have a hard time listening to Krugman... and not because he's won lots of big bets).
posted by pompomtom at 5:03 PM on November 10, 2008


In my desire to make a 'fedoras for all!" joke, I realized that the hats they mostly wore in the 30s probably weren't fedoras. While searching for "great depression hats" I stumbled upon a cafe press style store of "Great Depression Trucker Hats."

That's how I know this country's gonna be okay. Okay, or completely fucked.
posted by Solon and Thanks at 5:06 PM on November 10, 2008


me: Why are school districts buying anything? Let alone parking the cash all in one place.

mkultra: "Listen to the podcast instead of asking a question it answers in the first few minutes."

Like I said, listened to the show over the weekend in the car. They were either past that point when I got to it, or I was busy not killing myself, but your point still stands. As does mine. Still seems like an asshat thing to do, and if required to do so, seems like an asshat requirement.

Sorry I asked a question answered in the links. I hate when other people do that, so will take the wet noodle whipping anytime.
posted by cjorgensen at 5:33 PM on November 10, 2008


I was attacked by an Irish Bank.
posted by storybored at 5:37 PM on November 10, 2008


The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.
posted by ZenMasterThis at 6:00 PM on November 10, 2008


cjorgensen, assuming you're talking about the NPR special on the Wisconsin school district: remember that one of the fundamental problems with the CDOs and what have you is that they were being rated as safely as government bonds. Some brokers came to the school district and made a very, very slick sales presentation that said:

1. School districts/municipalities get very, very low interest rates on their loans because they never miss payments
2. Here's some AAA rated "bonds" we can sell you such that you'll make money by investing the money you lend! Then you can get new books, pay your teachers, and everything! All without watching yet another tax increase referendum fail.

In fact they weren't buying what they thought they were buying, they were actually insuring (as I understand it) commercial paper loans that companies like Anheuser Busch were taking out to run their daily operations. Everything actually worked exactly as the brokers said it would, for a while. The school district always made their payments, and the people buying their insurance always made theirs. Until everything melted down and companies they had no idea they were connected to started defaulting on their loans.

The school district did a lot of things right. But I mean, they were sold a spot in a web where megacorps they had no awareness of defaulted on loans they didn't know they were insuring, adding them to an avalanche that almost sunk a German bank headquartered in Ireland.

The whole system is pretty insane.
posted by kavasa at 6:07 PM on November 10, 2008


This article mentions that Civil War soldiers sometimes used raw meat when making the homebrew, "Oh Be Joyful"
posted by mblandi at 6:27 PM on November 10, 2008


ZenMasterThis: That seems like a good idea, unless you want runs on those same banks tomorrow.
posted by bonaldi at 6:46 PM on November 10, 2008


Also the link drawing comparisons with the USSR is fascinating but also reminds me of these great Soviet-published academic texts from 1986 that set out to prove why a command economy is just the ticket and American Capitalism is doomed come next Tuesday.
posted by bonaldi at 6:55 PM on November 10, 2008


I have a hard time listening to Soros, a man who made his fortune attacking the currencies of vulnerable nations

ummm... vulnerable? What Soros did with the money he made off of making bets on the poor policies chosen by the "vulnerable" nations in question, may arguably have been a better use of the money than what countries themselves may have done with it - eg: soros.org and OSI
posted by specialk420 at 7:11 PM on November 10, 2008


A Quiet Windfall For U.S. Banks: With Attention on Bailout Debate, Treasury Made Change to Tax Policy
The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.

Motherfuckers. This will not stand. Where'd I put that pitchfork...
posted by homunculus at 7:20 PM on November 10, 2008 [1 favorite]


Some brokers came to the school district and made a very, very slick sales presentation that said:

1. School districts/municipalities get very, very low interest rates on their loans because they never miss payments
2. Here's some AAA rated "bonds" we can sell you such that you'll make money by investing the money you lend! Then you can get new books, pay your teachers, and everything! All without watching yet another tax increase referendum fail.


I just listened to the podcast myself moments ago unaware of this thread, and it's not quite like that. It's described as a boring presentation where even the salesman calls it "a black box". This is not a slick pitch, unless you intend to win customers by attrition. It sounds more like a chain of people, broker, board and accountants, who really had no clue.
posted by pwnguin at 7:27 PM on November 10, 2008


That seems like a good idea, unless you want runs on those same banks tomorrow.

So what's the argument against disclosing the collateral the Fed is accepting, and at what valuation? Might cause runs on institutions that are only surviving because their buddies at the Fed are giving them the old-friends rate?

I just got back from a town hall meeting with my congressperson, Jan Schakowsky, ninth district of Illinois. To broad applause she railed against the transfer of wealth from the many to the few under the Bush administration's tax policy. She denounced trickle-down economics and called for fixing the economy from the bottom up. The crowd ate it up when she called for jailing CEOs. But somehow she neglected to mention the two times she voted for the huge transfer of wealth, sans accountability (we can trust these guys — this will be the Bush program administered without cronyism, dishonesty, political favoritism, and self-dealing, right?), from all of us to the banks by way of Hank Paulson — the trickle-down scam of all trickle-down scams, the bill that really stuck it to the CEOs by capping executive compensation for new hires (i.e., hardly anyone, and none of those who did it) for all of two years.

Guys who mug little old ladies have more shame than these motherfuckers.
posted by enn at 8:43 PM on November 10, 2008


OK, then.

*packs poke, hops boxcar*



*cough* *hack* I move out of the shadows and straw, "Hey mister, what you got in that poke? Any bread, or dried fish, or tobacky? Maybe a bottle of . . . " I begin to tear up as the train rolls and rocks "Maybe a little hooch?" The stranger a silhouette, stands silent. 'Go lay back down old man' I wipe at my eyes and drop back into the culm, and straw. He called me 'old man'. I look it now. Only 29 with all but four teeth I know I must look like an old man.

He moves into the car, and settles down next to the rest of us. I wonder if this train runs through Brassfield, they needed pickers there last summer maybe they'll take some of us on again. Just then, over the sound of whispering, and the rhythmic times of the car and engine, the sharp sound of a mouth harp blowing. The stranger was playing. It sounded like it could be the Star Spangled Banner one minute, and the next maybe Camptown Races. I really couldn't be sure. 'This is gonna be a long ride' I heard someone mutter.

The car rocked back and forth, and the outside went slowly by. The stranger honked away on the harp, and my lids got heavy, and then . . .
posted by nola at 9:03 PM on November 10, 2008 [1 favorite]


"Say, any of you boys smithies? Or, if not smithies per se, were you otherwise trained in the metallurgic arts before straitened circumstances forced you into a life of aimless wanderin'?"
posted by spock at 10:39 PM on November 10, 2008 [2 favorites]


The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans

That $2 trillion is to cover the money the Pentagon can't find and announced on Sept 10th 2001.
posted by rough ashlar at 5:16 AM on November 11, 2008


Very interesting article. The lede snippet in the FPP is a little misleading, it's not a hand-waving or doomsaying piece, it's a platform for Soros to rollout a new idea he's cooked up about explaining market behavior. Basically he's saying that free market fundamentalism is a totally inadequate, if not totally incorrect, theoretical framework and the corresponding policy initiatives based on that framework are not surprisingly also inadequate and destined to fail. This is the meatier part of the opening:

The crisis was generated by the financial system itself. This fact—that the defect was inherent in the system —contradicts the prevailing theory, which holds that financial markets tend toward equilibrium and that deviations from the equilibrium either occur in a random manner or are caused by some sudden external event to which markets have difficulty adjusting. The severity and amplitude of the crisis provides convincing evidence that there is something fundamentally wrong with this prevailing theory and with the approach to market regulation that has gone with it. To understand what has happened, and what should be done to avoid such a catastrophic crisis in the future, will require a new way of thinking about how markets work.

Then:

This remarkable sequence of events can be understood only if we abandon the prevailing theory of market behavior. As a way of explaining financial markets, I propose an alternative paradigm that differs from the current one in two respects. First, financial markets do not reflect prevailing conditions accurately; they provide a picture that is always biased or distorted in one way or another. Second, the distorted views held by market participants and expressed in market prices can, under certain circumstances, affect the so-called fundamentals that market prices are supposed to reflect. This two-way circular connection between market prices and the underlying reality I call reflexivity.

Further:

Bubbles thus have two components: a trend that prevails in reality and a misconception relating to that trend. The simplest and most common example is to be found in real estate. The trend consists of an increased willingness to lend and a rise in prices. The misconception is that the value of the real estate is independent of the willingness to lend. That misconception encourages bankers to become more lax in their lending practices as prices rise and defaults on mortgage payments diminish. That is how real estate bubbles, including the recent housing bubble, are born. It is remarkable how the misconception continues to recur in various guises in spite of a long history of real estate bubbles bursting.

Then he goes on to talk about how this type of market behavior might be effectively regulated. I would love to read some substantial critiques arguing why this proposal may or may not be true.
posted by The Straightener at 5:50 AM on November 11, 2008


I'd be a little more sympathetic to school districts if they weren't buying $5 million sports facilities and stadiums.
posted by crapmatic at 9:02 AM on November 11, 2008 [1 favorite]


Thanks The Straightener for pulling those gems out.

Is Soros' "reflexivity" theory really that groundbreaking? I'm not a financial man, but I am trained in control systems, and it seems to me obvious that the market is a) not intrinsically stable since b) it has a multitude of feedback connections to the assets it values (cf company boards forced by law to make decisions based on their share price). I've always thought this arrangement is broken and moreover dangerous. Are we just coming to that realisation?
posted by Popular Ethics at 7:00 AM on November 12, 2008


Read FDR's inaugural acceptance speech. Obama should read it word for word at his.

Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.
posted by allkindsoftime at 8:13 AM on November 12, 2008


The crisis was generated by the financial system itself... to avoid such a catastrophic crisis in the future, will require a new way of thinking about how markets work.

reminded me of a quote by einstein i saw: “The significant problems we face today cannot be solved at the same level of thinking we were at when we created them.”

re: substantial critiques

i dunno about substantial (or even critique ;) but 'reflexivity' isn't really anything new, as i'm pretty sure soros would readily admit! the 'capture' of regulatory oversight by the market, conflicts of interest, moral hazard etc. and the literature (2.0) [and theory (2.0)] surrounding it all is its own cottage industry -- bubble/mania and its flip side panic/depression. but along the history-rhymes-more-than-repeats praxis, i think soros' analysis of late-20th/early-21st (ought?) century finance is, um, on the money :P

his actual (one paragraph) policy proposal at the end was rather thin, otoh, basically regulatory reform, presumably 'smart' (with the understanding the 'innovation' is often an attempt to circumvent oversight), of the more-but-not-too-much kind, cf. macro-prudential regulation* and micro-regulatory policy.**

i'm thinking a complete overhaul of the financial system is in order, for starters:
- a 'tobin tax' on derivatives, cf. nader
- end deferred compensation, cf. fake alpha & getting incentives right
- and a realignment of the whole global monetary architecture, cf. BWIII (sports analogy)

speaking of crashes, while soros (and say lewis) have a bigger soapbox, i think the aleph blog (among others) is doing yeoman's work explicating events:
There is a common error with contrarian investing. It is not a question of identifying things that people believe that are wrong, but finding things that people rely on that are wrong. Reliance is the critical component. I don’t care about what people think if they don’t have any skin in the game. When someone relies on a certain result happening (or not happening), then there will be series of behaviors that happen as what he believes in fails, from intensifying the bet in the early phases, to throwing in the towel in disgust at the end.

I’m going to take this idea and twist it a different way tonight. One thing that the Democrats and Republicans (except Ron Paul) agree and rely on is that they know how to avoid a repeat of the Great Depression. The textbook answer is:

  • Easy Money
  • Fiscal Stimulus
  • Don’t Raise Trade Barriers

    Ben Bernanke learned this as a young college student, and built it up in his Ph. D. dissertation. He has the same moral certainty about this that George Bush, Jr. does about fighting terrorism. And, I’m going suggest that Bernanke, and most of the political establishment (which hasn’t really changed in the last few days) are wrong.

    What is a bubble? My definition: a bubble is a self-reinforcing cycle where monies invested obtain a negative return in aggregate over the long haul. It is characterized by significant borrowing at low rates to invest in already appreciated assets in order to profit from a momentum-driven market. When cash flow is insufficient to pay the interest to finance the bubble, the bubble pops, and a self-reinforcing bear market ensues. When that bear market encompasses most of the financial system, we call it a depression.

    What is a depression? A severe recession where the banks are impaired. In an ordinary recession, lowering the Fed funds rate can stimulate the banks to lend. Not so now; the banks are licking their wounds, and letting profits grow by financing at lower rates, and sucking in bailout cash to shore up their balance sheets against future real estate lending losses.

    The Great Depression ended when the Debt to GDP ratio dropped below 150%. When enough debts were extinguished by payoff or default, the system could once again be normal. Virtually none of the efforts of FDR focused on eliminating debts; in my opinion, he lengthened and intensified the Depression by not encouraging the liquidation of bad debts. And now we do the same thing. We perpetuate the misallocation of resources by trying to keep house prices high, by bailing out institutions that should go through the bankruptcy process. This fails to convert bad debts into equity in newly solvent businesses.

    All the US government is doing is creating a bigger bubble. What will happen when the Treasury auctions fail, or, stretch the yield curve so wide that there is panic. We don’t want our financial institutions to fail, so we are willing to wager the creditworthiness of the nation in order to save them. I don’t like that bet. Many empires have died choking on debt. Is the US to be next?
  • also see:and just to connect the threads/cross the streams...

    ---
    * there was lots of interesting stuff in bernanke's Q&A that day; the big one was his view on 'macro-prudential regulation' for asset bubbles (a reversal from greenspan), but also greater oversight and regulation of systemically important (too big to fail) institutions, the need to move OTC derivatives trading onto centralized exchanges, and new rules for taking over (perceived systemically important) non-bank institutions when they fail, viz. his failure timeline for lehman.

    ** "...government is now part of bank management. Government intervention could manage to limit the credit decline to less than 10%, at the cost of more capital injections, further longer-term guarantees of liabilities, tolerance of higher leverage within socialized banks, and not a little credit 'dirigisme', i.e., directing banks to lend."
    posted by kliuless at 11:34 AM on November 12, 2008 [2 favorites]


    Krugman: Depression Economics Returns
    posted by homunculus at 11:43 AM on November 15, 2008


    hmmm, now i'm wondering if soros isn't saying something slightly/subtly new, viz.
    One of the great lessons [of investing] is beware of platitudes, such as "There has never been a national decline in home prices." If you believe that there has never been a national decline in home prices and that there never could be, then you bid home prices up to levels that don't allow for the risk of widespread losses, because you concluded it could never happen. Then the fact that they are at those new high prices introduces, in itself, the risk of a national home-price decline.

    So the actions of people relying on history change history, and that is what people lose track of. [em added]
    also btw, along the 'averages obscure as much as they reveal' line :P

    cheers!
    posted by kliuless at 8:49 PM on November 15, 2008


    Naomi Klein on the Bailout Profiteers and the Multi-Trillion-Dollar Crime Scene
    posted by homunculus at 3:37 PM on November 17, 2008


    The Lame-Duck Economy
    posted by homunculus at 9:54 AM on November 22, 2008


    Krugman: What to Do
    posted by homunculus at 1:58 PM on November 28, 2008


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