Ben '09
December 16, 2009 5:52 AM Subscribe
"The story of the year was a weak economy that could have been much, much weaker. Thank the man who runs the Federal Reserve, our mild-mannered economic overlord." Ben Bernanke is Time's 2009 Person of the Year. Runners-up include General Stanley McChrystal, Nancy Pelosi, and Neda Agha-Soltan.
This post was deleted for the following reason: Poster's Request -- Brandon Blatcher
Well, that's going to fly off the newstand!
posted by A Terrible Llama at 5:57 AM on December 16, 2009
posted by A Terrible Llama at 5:57 AM on December 16, 2009
Big deal. I was Time's Person of the Year too.
posted by twoleftfeet at 6:04 AM on December 16, 2009 [2 favorites]
posted by twoleftfeet at 6:04 AM on December 16, 2009 [2 favorites]
Slightly off topic - can someone who knows stuff tell me if it's true that most of the bailout money has been paid back or is fairly reliably expected to be paid back? I think I've only head from partisan extremists on both sides of this issue, and now I want to hear from a smart person who's paid five bucks for the privilege of telling me. ^_^
posted by fleetmouse at 6:07 AM on December 16, 2009
posted by fleetmouse at 6:07 AM on December 16, 2009
TARP Payments & Recipients
TARP Repayments
Treasury Revenue from TARP (fees, dividends, interest, warrants)
posted by jckll at 6:18 AM on December 16, 2009 [2 favorites]
TARP Repayments
Treasury Revenue from TARP (fees, dividends, interest, warrants)
posted by jckll at 6:18 AM on December 16, 2009 [2 favorites]
In addition to those lists, Citigroup and Wells Fargo just said on Monday they would repay ASAP too. That's all of the biggest banks.
(Note that both of them are issuing shares to raise money, because they really don't want to owe money to the government.)
posted by smackfu at 6:28 AM on December 16, 2009
(Note that both of them are issuing shares to raise money, because they really don't want to owe money to the government.)
posted by smackfu at 6:28 AM on December 16, 2009
I would have gone with Orly Taitz. Hell, I've never even seen Ben Hussein Bernake's birth certificate. I'm so sick of the mainstream media.
posted by allen.spaulding at 6:30 AM on December 16, 2009 [5 favorites]
posted by allen.spaulding at 6:30 AM on December 16, 2009 [5 favorites]
Time also released the person of the year for 2030 - your children who will be paying for this shit.
posted by anthill at 6:30 AM on December 16, 2009
posted by anthill at 6:30 AM on December 16, 2009
Time's Person of the Year, when it is not ragingly obvious, has been an almost uniformly ghastly choice. Last year was a good example of the former (you couldn't not pick Obama) but this year they're back to form with the latter.
Also, you know who else won Person of the Year? Yep. Hitler.
posted by graymouser at 6:32 AM on December 16, 2009 [2 favorites]
Also, you know who else won Person of the Year? Yep. Hitler.
posted by graymouser at 6:32 AM on December 16, 2009 [2 favorites]
At least they didn't pick Obama again.
posted by smackfu at 6:32 AM on December 16, 2009 [1 favorite]
posted by smackfu at 6:32 AM on December 16, 2009 [1 favorite]
Seriously? Ben Bernanke? Way to dig deep, Time. You could at least give some credit to Spencer, whose generous donation of teeth propped up the Federal Reserve.
posted by explosion at 6:33 AM on December 16, 2009 [1 favorite]
posted by explosion at 6:33 AM on December 16, 2009 [1 favorite]
You know who else was TIME's Person of the Year?
That's right. twoleftfeet.
posted by Eideteker at 6:33 AM on December 16, 2009 [1 favorite]
That's right. twoleftfeet.
posted by Eideteker at 6:33 AM on December 16, 2009 [1 favorite]
In addition to those lists, Citigroup and Wells Fargo just said on Monday they would repay ASAP too. That's all of the biggest banks.
(Note that both of them are issuing shares to raise money, because they really don't want to owe money to the government.)
They are both in deep trouble with lots of toxic assets on their books. Nevertheless, now that the crisis in faith has relaxed both everyone wants the paybacks to happen. The banks want it to get free of executive salary restrictions and the Fed and Obama want it to score political points by showing how the TARP system made money for the government etc.
posted by caddis at 6:34 AM on December 16, 2009
(Note that both of them are issuing shares to raise money, because they really don't want to owe money to the government.)
They are both in deep trouble with lots of toxic assets on their books. Nevertheless, now that the crisis in faith has relaxed both everyone wants the paybacks to happen. The banks want it to get free of executive salary restrictions and the Fed and Obama want it to score political points by showing how the TARP system made money for the government etc.
posted by caddis at 6:34 AM on December 16, 2009
I wonder if Time mainly chose this just because they wanted the free publicity that would come from a right wing freakout. Granted, they'd probably get that with any other nomination, too.
"They chose Sarah Palin? That's all well and good, but why isn't Trig on the cover? What do they have against people with Downs? NAZIS!"
posted by mccarty.tim at 6:38 AM on December 16, 2009
"They chose Sarah Palin? That's all well and good, but why isn't Trig on the cover? What do they have against people with Downs? NAZIS!"
posted by mccarty.tim at 6:38 AM on December 16, 2009
Big deal. I was Time's Person of the Year too.
But now Bernanke has won twice.
posted by DU at 6:39 AM on December 16, 2009 [3 favorites]
But now Bernanke has won twice.
posted by DU at 6:39 AM on December 16, 2009 [3 favorites]
You know who else was Time's person of the year.
That's right: The Metafilter server
posted by drezdn at 6:41 AM on December 16, 2009
That's right: The Metafilter server
posted by drezdn at 6:41 AM on December 16, 2009
Drezdn, could you please use the NSFW tag, there was a photo of Bono on that link.
posted by Elmore at 6:55 AM on December 16, 2009 [2 favorites]
posted by Elmore at 6:55 AM on December 16, 2009 [2 favorites]
Well, the Time award is for the person who affected the world the most in a given year, and Bernanke's the obvious choice.
But he didn't do us any favors. All he did was put off the inevitable debt crisis, and made it worse. He avoided nothing; in essence, we promised the world a leg tomorrow if they please won't take our foot today.
We spent more money than on every war we've ever fought, combined, with the sole purpose of not changing anything. If there is any set of decisions more profoundly stupid in American history, I'm not aware of it.
posted by Malor at 6:57 AM on December 16, 2009 [3 favorites]
But he didn't do us any favors. All he did was put off the inevitable debt crisis, and made it worse. He avoided nothing; in essence, we promised the world a leg tomorrow if they please won't take our foot today.
We spent more money than on every war we've ever fought, combined, with the sole purpose of not changing anything. If there is any set of decisions more profoundly stupid in American history, I'm not aware of it.
posted by Malor at 6:57 AM on December 16, 2009 [3 favorites]
Slightly off topic - can someone who knows stuff tell me if it's true that most of the bailout money has been paid back or is fairly reliably expected to be paid back?
Well, there was a big announcement recently about how, due to TARP recipients paying back their obligations more quickly than expected and other positive developments, it turns out that initial estimates of the costs of the bailout to taxpayers were significantly overstated.
The Obama administration had estimated the cost to taxpayers of the $700-billion Troubled Asset relief Program, or TARP, would be $341 billion but now says it can cut that by $200 billion.
I think recent conservative estimates are that the cost are likely to come in at around $140 billion, but it's also been suggested the number will come down even more over time.
posted by saulgoodman at 6:58 AM on December 16, 2009
Well, there was a big announcement recently about how, due to TARP recipients paying back their obligations more quickly than expected and other positive developments, it turns out that initial estimates of the costs of the bailout to taxpayers were significantly overstated.
The Obama administration had estimated the cost to taxpayers of the $700-billion Troubled Asset relief Program, or TARP, would be $341 billion but now says it can cut that by $200 billion.
I think recent conservative estimates are that the cost are likely to come in at around $140 billion, but it's also been suggested the number will come down even more over time.
posted by saulgoodman at 6:58 AM on December 16, 2009
Well, I for one think it’s a fine choice. In bad times, his position has got to be the most unrewarding; I have no earthly idea why he signed up for another term.
Also: the money’s getting paid back, the bailout was a necessary evil, yaddah yaddah yadda
posted by Think_Long at 7:06 AM on December 16, 2009 [1 favorite]
Also: the money’s getting paid back, the bailout was a necessary evil, yaddah yaddah yadda
posted by Think_Long at 7:06 AM on December 16, 2009 [1 favorite]
Also, I’m surprised the “SowasHitler!” tag has only been used once
posted by Think_Long at 7:07 AM on December 16, 2009 [1 favorite]
posted by Think_Long at 7:07 AM on December 16, 2009 [1 favorite]
but it's also been suggested the number will come down even more over time.
Actually, back in January or February, it was suggested by the administration that the bailout would be a wash (or even possibly a slight net gain) within 5-10 years -- this based on what had happened with similar smaller scale bailouts in the past. At the time, no one wanted to hear that. I suspect many people will continue to believe that the Obama Administration "gave 700 billion" to the banks long after Obama is in the history books, simply because it makes a better spun story.
posted by anastasiav at 7:07 AM on December 16, 2009 [3 favorites]
Actually, back in January or February, it was suggested by the administration that the bailout would be a wash (or even possibly a slight net gain) within 5-10 years -- this based on what had happened with similar smaller scale bailouts in the past. At the time, no one wanted to hear that. I suspect many people will continue to believe that the Obama Administration "gave 700 billion" to the banks long after Obama is in the history books, simply because it makes a better spun story.
posted by anastasiav at 7:07 AM on December 16, 2009 [3 favorites]
Why do people get so upset about the Hitler business? Time Magazine clearly states it is the person who most affected the world for better or worse. It's a weird criteria to go with a title which seems to impart esteem but, by those standards, Bernanke and Hitler qualified. Obama might have been ahead of Bernanke, if it weren't for the repeat. Who else? Pelosi? Not really that much resonance outside of the US. Michael Jackson? Tiger Woods?
posted by dances_with_sneetches at 7:14 AM on December 16, 2009 [2 favorites]
posted by dances_with_sneetches at 7:14 AM on December 16, 2009 [2 favorites]
The story of the year was a weak economy that could have been much, much weaker.
Except, of course, that they repeatedly predicted that it was going to be much stronger. Even the predictions for "what will happen if we do nothing" had lower peak unemployment than we actually saw. They can't see where the economy is going, but they can still steer it away from disaster?
You'd think that at some time in the last few millenia people would have stopped falling for "Our priests' prayers stopped the sun from being eaten!"
posted by roystgnr at 7:15 AM on December 16, 2009 [7 favorites]
Except, of course, that they repeatedly predicted that it was going to be much stronger. Even the predictions for "what will happen if we do nothing" had lower peak unemployment than we actually saw. They can't see where the economy is going, but they can still steer it away from disaster?
You'd think that at some time in the last few millenia people would have stopped falling for "Our priests' prayers stopped the sun from being eaten!"
posted by roystgnr at 7:15 AM on December 16, 2009 [7 favorites]
You know who it isn't? Harry Reid.
posted by grouse at 7:15 AM on December 16, 2009 [2 favorites]
posted by grouse at 7:15 AM on December 16, 2009 [2 favorites]
I would say that Alan Greenspan deserves the space more. His actions over from 1987 to 2006 set the stage for Bernanke in 2009.
posted by codacorolla at 7:17 AM on December 16, 2009 [1 favorite]
posted by codacorolla at 7:17 AM on December 16, 2009 [1 favorite]
anastasia: the real damage is allowing the banks to continue business models that assume unlimited liquidity, creating financial instruments that look like money and trade like money, and end up FUNCTIONING like money, causing the huge runups and then collapses in first the stock and then the real estate markets. The Fed was forced to MAKE many of those instruments real, by injecting absolutely unprecedented amounts of money into the system. They lent it to pretty much anyone who asked, in secret, collateralized by obligations that were little better than IOUs scrawled on napkins.
The bailout means Wall Street will keep jamming the system full of risk, because they know the Federal government will bail them out if they get in trouble. Even if they pay back the money, we still lose, because the fundamental models that they're using are dangerous, and they haven't been removed from the system.
In essence, they have lived lives of luxury over the last ten years that you and I can't even imagine, extracting wealth on a scale that's never existed. They did that by loading the financial system up with bogus financial instruments, choking it with risk. When that risk blew up, they didn't have the face the consequences; they got to keep their yachts and their mansions, while we cleaned up the mess.
They're going to do it again, and again, and again. And THAT is the real cost, not the $700 billion.
Further, it's worth pointing out that, while this isn't Bernanke's fault, the Federal government is now the biggest issuer of mortgages and the biggest insurer OF those mortgages. If you take the time to think that through, it should scare the piss out of you.
posted by Malor at 7:18 AM on December 16, 2009 [15 favorites]
The bailout means Wall Street will keep jamming the system full of risk, because they know the Federal government will bail them out if they get in trouble. Even if they pay back the money, we still lose, because the fundamental models that they're using are dangerous, and they haven't been removed from the system.
In essence, they have lived lives of luxury over the last ten years that you and I can't even imagine, extracting wealth on a scale that's never existed. They did that by loading the financial system up with bogus financial instruments, choking it with risk. When that risk blew up, they didn't have the face the consequences; they got to keep their yachts and their mansions, while we cleaned up the mess.
They're going to do it again, and again, and again. And THAT is the real cost, not the $700 billion.
Further, it's worth pointing out that, while this isn't Bernanke's fault, the Federal government is now the biggest issuer of mortgages and the biggest insurer OF those mortgages. If you take the time to think that through, it should scare the piss out of you.
posted by Malor at 7:18 AM on December 16, 2009 [15 favorites]
Bernanke tolerates way too much unemployment. He seriously needs to go.
posted by jonp72 at 7:22 AM on December 16, 2009
posted by jonp72 at 7:22 AM on December 16, 2009
Why do people get so upset about the Hitler business?
As the guy who brought up the Hitler business, I have to say – I'm not "upset" that Time gave him the award. I just think it makes the whole idea somewhat dubious, given that it is a category one has to share with Hitler. I think, at this point, they should probably just give the whole idea of "most influential person" a rest.
posted by graymouser at 7:27 AM on December 16, 2009
As the guy who brought up the Hitler business, I have to say – I'm not "upset" that Time gave him the award. I just think it makes the whole idea somewhat dubious, given that it is a category one has to share with Hitler. I think, at this point, they should probably just give the whole idea of "most influential person" a rest.
posted by graymouser at 7:27 AM on December 16, 2009
Well, the Time award is for the person who affected the world the most in a given year, and Bernanke's the obvious choice.
Blech, I just keep getting less and less sure that anyone in government is doing anything to affect the outcomes in any given span of time, at least anymore than Joe Shmoe mowing his lawn. The fed bailing out failing banks, the president propping up the military-industrial complex and medical-industrial complex, and on and on. It doesn't matter who you plug into those positions, about the same things are going to happen.
Obama was right, it's up to us now. He can't change our direction for us, whether "us" is 300 million Americans or the population of the whole world. That's a ridiculous and stupid expectation. We've forsaken the most important part of our democracy: not the power to choose who to put into political office, but the power to direct our own individual decisions that affect not only our own individual outcomes, but our collective outcome as well.
posted by symbollocks at 7:29 AM on December 16, 2009 [2 favorites]
Blech, I just keep getting less and less sure that anyone in government is doing anything to affect the outcomes in any given span of time, at least anymore than Joe Shmoe mowing his lawn. The fed bailing out failing banks, the president propping up the military-industrial complex and medical-industrial complex, and on and on. It doesn't matter who you plug into those positions, about the same things are going to happen.
Obama was right, it's up to us now. He can't change our direction for us, whether "us" is 300 million Americans or the population of the whole world. That's a ridiculous and stupid expectation. We've forsaken the most important part of our democracy: not the power to choose who to put into political office, but the power to direct our own individual decisions that affect not only our own individual outcomes, but our collective outcome as well.
posted by symbollocks at 7:29 AM on December 16, 2009 [2 favorites]
Here's a list of everyone who has been a "Person of the Year."
posted by zarq at 7:32 AM on December 16, 2009
posted by zarq at 7:32 AM on December 16, 2009
they didn't have the face the consequences; they got to keep their yachts and their mansions, while we cleaned up the mess.
In other words... you know how so many people are badly underwater on their mortgages? A lot of the "money" that was used to bid those houses up so high simply evaporated, but a lot of it is in those mansions and yachts. We're suffering today on the ground because of these financial instruments; they created fake wealth, and Wall Street took a percentage of that fake wealth and turned it into real goods. Then the fake wealth evaporated, but we stepped in and made it good only for the big players. If you're underwater on your house, some of that money is in a sold gold fixture on a boat somewhere.
By bailing them out, we did three things. First, we ensured they didn't pay the price for their speculation. We covered their enormous gambling losses, while they kept all the prior winnings. Second, we ensured that they kept playing. And they will continue to keep their winnings while we eat any really drastic losses. Third, we demonstrated that the rules don't matter... as soon as anything sufficiently undesirable shows up, we will change any rule we have to in order to try to dodge it, no matter what the long term consequences are.
THAT is why the bailout is so bad, not just the dollar figure. "Too big to fail" means that they're free to speculate wildly and extract as much wealth as they can with zero fear, as long as they hedge themselves in such a way that they'll take the system down with them if their larger positions blow up. We have almost literally handed them a license to print money, with all the attendant consequences of money creation.
The fed bailing out failing banks, the president propping up the military-industrial complex and medical-industrial complex, and on and on. It doesn't matter who you plug into those positions, about the same things are going to happen.
Volcker wouldn't have done any of that. He was fantastic. He was willing to inflict short-term pain to avoid long-term consequences. But Greenspan and now Bernanke are most emphatically NOT; they never saw a problem that a little more cash wouldn't cure.
posted by Malor at 7:34 AM on December 16, 2009 [6 favorites]
In other words... you know how so many people are badly underwater on their mortgages? A lot of the "money" that was used to bid those houses up so high simply evaporated, but a lot of it is in those mansions and yachts. We're suffering today on the ground because of these financial instruments; they created fake wealth, and Wall Street took a percentage of that fake wealth and turned it into real goods. Then the fake wealth evaporated, but we stepped in and made it good only for the big players. If you're underwater on your house, some of that money is in a sold gold fixture on a boat somewhere.
By bailing them out, we did three things. First, we ensured they didn't pay the price for their speculation. We covered their enormous gambling losses, while they kept all the prior winnings. Second, we ensured that they kept playing. And they will continue to keep their winnings while we eat any really drastic losses. Third, we demonstrated that the rules don't matter... as soon as anything sufficiently undesirable shows up, we will change any rule we have to in order to try to dodge it, no matter what the long term consequences are.
THAT is why the bailout is so bad, not just the dollar figure. "Too big to fail" means that they're free to speculate wildly and extract as much wealth as they can with zero fear, as long as they hedge themselves in such a way that they'll take the system down with them if their larger positions blow up. We have almost literally handed them a license to print money, with all the attendant consequences of money creation.
The fed bailing out failing banks, the president propping up the military-industrial complex and medical-industrial complex, and on and on. It doesn't matter who you plug into those positions, about the same things are going to happen.
Volcker wouldn't have done any of that. He was fantastic. He was willing to inflict short-term pain to avoid long-term consequences. But Greenspan and now Bernanke are most emphatically NOT; they never saw a problem that a little more cash wouldn't cure.
posted by Malor at 7:34 AM on December 16, 2009 [6 favorites]
I think it's hilarious that one of the main reasons banks want to pay back TARP funds is so they can once again pay themselves absurd amounts.
And by "hilarious" I mean "something that makes me wonder where I put that guillotine".
posted by Legomancer at 7:35 AM on December 16, 2009 [11 favorites]
And by "hilarious" I mean "something that makes me wonder where I put that guillotine".
posted by Legomancer at 7:35 AM on December 16, 2009 [11 favorites]
Well, the government forced some of these banks to take TARP funds, so that the weak banks wouldn't be singled out. It's no surprise that the ones that didn't need the money paid it back ASAP.
posted by smackfu at 7:41 AM on December 16, 2009
posted by smackfu at 7:41 AM on December 16, 2009
I just think it makes the whole idea somewhat dubious, given that it is a category one has to share with Hitler. I think, at this point, they should probably just give the whole idea of "most influential person" a rest.
Why? At the time Hitler was given the nod, he WAS the most influential person in the world. All the world's major nations were watching him closely and hanging on his every word for clues as to where his actions might lead.
Frankly, any "award" that is honest enough to include the likes of Hitler, Stalin, Khomeini, etc. has a bit more credibility than one that assiduously tries to avoid controversy. Now, I'm not saying every one of Time's choices were well-considered and non-marketing-driven. But, looking over the history of the award, it's pretty obvious that the thing isn't a de-facto popularity prize. Though, it certainly can be argued that the award has opted more for the easy choice in the past 20 or so years.
posted by Thorzdad at 7:44 AM on December 16, 2009 [2 favorites]
Why? At the time Hitler was given the nod, he WAS the most influential person in the world. All the world's major nations were watching him closely and hanging on his every word for clues as to where his actions might lead.
Frankly, any "award" that is honest enough to include the likes of Hitler, Stalin, Khomeini, etc. has a bit more credibility than one that assiduously tries to avoid controversy. Now, I'm not saying every one of Time's choices were well-considered and non-marketing-driven. But, looking over the history of the award, it's pretty obvious that the thing isn't a de-facto popularity prize. Though, it certainly can be argued that the award has opted more for the easy choice in the past 20 or so years.
posted by Thorzdad at 7:44 AM on December 16, 2009 [2 favorites]
Oh, I should also answer this little bit:
We've forsaken the most important part of our democracy: not the power to choose who to put into political office, but the power to direct our own individual decisions that affect not only our own individual outcomes, but our collective outcome as well.
But you really can't, at least financially. Say you want to save money. Thanks to the Fed, you can't get any return on savings. The money that you SHOULD be able to get, five to seven percent over a one-year term, is basically being stolen from you and handed to banks by the simple expedient of monetary intervention. The Fed provides any amount of money the system wants in order to keep rates at their targeted level, very near zero. You're competing with your savings against an unlimited source of the same stuff, for free. So you're getting raped; you can't properly save money. You can't charge the system to use your unconsumed income. You have to either provide it for free, or else try to invest it in a company, or speculate on commodities.
If you're risk-averse, in other words, a careful saver, one of the people who drives real economic growth over the long term, you are getting boned.
posted by Malor at 7:46 AM on December 16, 2009 [8 favorites]
We've forsaken the most important part of our democracy: not the power to choose who to put into political office, but the power to direct our own individual decisions that affect not only our own individual outcomes, but our collective outcome as well.
But you really can't, at least financially. Say you want to save money. Thanks to the Fed, you can't get any return on savings. The money that you SHOULD be able to get, five to seven percent over a one-year term, is basically being stolen from you and handed to banks by the simple expedient of monetary intervention. The Fed provides any amount of money the system wants in order to keep rates at their targeted level, very near zero. You're competing with your savings against an unlimited source of the same stuff, for free. So you're getting raped; you can't properly save money. You can't charge the system to use your unconsumed income. You have to either provide it for free, or else try to invest it in a company, or speculate on commodities.
If you're risk-averse, in other words, a careful saver, one of the people who drives real economic growth over the long term, you are getting boned.
posted by Malor at 7:46 AM on December 16, 2009 [8 favorites]
Obama was right, it's up to us now. He can't change our direction for us, whether "us" is 300 million Americans or the population of the whole world. That's a ridiculous and stupid expectation. We've forsaken the most important part of our democracy: not the power to choose who to put into political office, but the power to direct our own individual decisions that affect not only our own individual outcomes, but our collective outcome as well.
And Time Magazine’s award for trite revolutionary sentiment of the year goes to . . .
posted by Think_Long at 7:49 AM on December 16, 2009 [2 favorites]
And Time Magazine’s award for trite revolutionary sentiment of the year goes to . . .
posted by Think_Long at 7:49 AM on December 16, 2009 [2 favorites]
"Here's a list of everyone who has been a "Person of the Year."
posted by zarq"
zarq, I don't see Me on that list. You're on there, though.
posted by Eideteker at 8:03 AM on December 16, 2009
posted by zarq"
zarq, I don't see Me on that list. You're on there, though.
posted by Eideteker at 8:03 AM on December 16, 2009
jonp72: Bernanke tolerates way too much unemployment.
It's not like he has an Unemployment knob on his desk that he can simply dial down.
posted by shakespeherian at 8:07 AM on December 16, 2009 [1 favorite]
It's not like he has an Unemployment knob on his desk that he can simply dial down.
posted by shakespeherian at 8:07 AM on December 16, 2009 [1 favorite]
Maybe I'm in the minority here, but I actually sort of liked the 2006 "You" pick. It makes me wonder if people were scoffing in 1983 when they picked the computer.
posted by codacorolla at 8:12 AM on December 16, 2009
posted by codacorolla at 8:12 AM on December 16, 2009
jonp72: Bernanke tolerates way too much unemployment.
It's not like he has an Unemployment knob on his desk that he can simply dial down.
No kidding. If anyone were motivated to reduce unemployment, it would be him.
posted by Think_Long at 8:15 AM on December 16, 2009 [1 favorite]
It's not like he has an Unemployment knob on his desk that he can simply dial down.
No kidding. If anyone were motivated to reduce unemployment, it would be him.
posted by Think_Long at 8:15 AM on December 16, 2009 [1 favorite]
It's my understanding that some of the TARP money has been repaid by the banks through money they got from low interest government loans.
posted by drezdn at 8:19 AM on December 16, 2009
posted by drezdn at 8:19 AM on December 16, 2009
One more comment and I'll stop posting...
Malor: How realistic do you think the assertations are that if Bernanke hadn't propped up the banks that we would've had a far worse version of the great depression? Do you think that the TARP was just a bandaid, and that worse times are still around the corner. Do you think that the lending structure of the modern economy could've been saved, but in a better manner that didn't reward and perpetuate bad practice? Time makes the case that Bernanke's solution wasn't pretty, but that it was largely necessary and effective. I know you think it wasn't effective, but would you agree that something was necessary, and if so what?
posted by codacorolla at 8:22 AM on December 16, 2009
Malor: How realistic do you think the assertations are that if Bernanke hadn't propped up the banks that we would've had a far worse version of the great depression? Do you think that the TARP was just a bandaid, and that worse times are still around the corner. Do you think that the lending structure of the modern economy could've been saved, but in a better manner that didn't reward and perpetuate bad practice? Time makes the case that Bernanke's solution wasn't pretty, but that it was largely necessary and effective. I know you think it wasn't effective, but would you agree that something was necessary, and if so what?
posted by codacorolla at 8:22 AM on December 16, 2009
If you're risk-averse, in other words, a careful saver, one of the people who drives real economic growth over the long term, you are getting boned.
While it's true that we've incentivized dangerous risk in the past few years, a healthy level of risk in investment actually seems to be a better driver of real economic growth. Being an extremely risk-averse, careful saver and putting your cash in bank accounts is kind of like putting it under a mattress.
Economic growth is stimulated by investing money into something, not just saving it. Whether you're investing in the stock market, your local/state/federal government (by way of bonds), a local company, or what-have-you, your money's actually doing something. You get an potentially increased return because of the risk of failure.
The base interest rate of a risk-less savings account should be just enough to keep up with inflation. No person should be able to accumulate money just by having other money sitting somewhere risk-free. The reason why savings accounts generate so little interest is because inflation's effectively stagnated with the economic lull.
posted by explosion at 8:22 AM on December 16, 2009 [1 favorite]
While it's true that we've incentivized dangerous risk in the past few years, a healthy level of risk in investment actually seems to be a better driver of real economic growth. Being an extremely risk-averse, careful saver and putting your cash in bank accounts is kind of like putting it under a mattress.
Economic growth is stimulated by investing money into something, not just saving it. Whether you're investing in the stock market, your local/state/federal government (by way of bonds), a local company, or what-have-you, your money's actually doing something. You get an potentially increased return because of the risk of failure.
The base interest rate of a risk-less savings account should be just enough to keep up with inflation. No person should be able to accumulate money just by having other money sitting somewhere risk-free. The reason why savings accounts generate so little interest is because inflation's effectively stagnated with the economic lull.
posted by explosion at 8:22 AM on December 16, 2009 [1 favorite]
Bernanke has indeed performed well - I can't say whether or not he's "Person of the Year" level, but from a banking point of view, hell yeh we were staring into the abyss for a while there. But you'd expect this as he's a long acknowledged student of the great depression.
So while his game plan seems to have worked to date, the really perceptive market participants don't look back pointing fingers; it's looking forward that's not only profitable but also tough and interesting. Very interesting.
What's interesting to me (and lots of other market participants) is the complete collapse of the Shadow Banking System, this incredible evaporation of liquidity and at the same time the prices of lots of real assets are increasing (gold aside).
If The Fed could monetise the entire issuance of US Treasuries tomorrow it still wouldn't provide as much liquidity as the Shadow Banking System did, which once upon a time was sized in excess of $10T. All that liquidity is pretty much gone now, and this absence is an absolutely massive deflationary force and its still not clear to exactly what Bernanke's plan to counter this is. Big problem, in spite of the short term good economic news we've been seeing.
And if even they could get the ECB to cooperate and monetise debt as well, two Central Banks busily purchasing all outstanding government paper, they simply don't have the firepower. And, of course, the ECB simply would never do such a thing, they never opened up as much as The Fed did. So the first wave of foreclosures Bernanke was dealing with is upon us and the second is about to start.
In any case, much of Bernankes game plan seems to be sourced from Irving Fisher's Debt-Deflation Theory of Great Depressions [ .pdf ], although back in 1933 nobody would have ever been able to forsee the emergence of the Shadow Banking System, at least not in the scale we observed.
Another concern is US borrowing at the short end of the yield curve; we do see The Fed trying to move out even as demand for short term treasuries falls, but when 10 year money is only yielding about 3.5%, its clear demand for treasuries at that rate is sorta low (since 1995 we've seen an average rate of roughly 5.95% for ten year treasuries)
And gold? Well, while gold isn't in bubble territory yet but the media is seriously stoking fears by citing all sorts of shortages and supply side problems with physical (US and South African Governments both ceasing sales for different reasons) even as one of the larger producers stops selling forward. On a personal note, I'm still actively purchasing metals, both ETFs in my US side brokerage accounts and physical here in London, and my dealer is still experiencing supply problems; not as bad as Q1 when I had to order bullion two to three weeks in advance, but the just last week I wanted to buy fifty oz of Silver and could only get twenty one
Another interesting tidbit is EuroZone stress; Greece is already close to a sovereign default while some of the big funds, emboldened by profitable earlier bets, are now doubling up. If they can push any weaker player into a technical default they will. All that will cause unnatural US dollar strength, perhaps artificially depressing treasury yields in another "flight to safety".
Which will, of course, present another opportunity to purchase undervalued assets as the weaker hands unload.
Interesting times.
posted by Mutant at 8:32 AM on December 16, 2009 [18 favorites]
So while his game plan seems to have worked to date, the really perceptive market participants don't look back pointing fingers; it's looking forward that's not only profitable but also tough and interesting. Very interesting.
What's interesting to me (and lots of other market participants) is the complete collapse of the Shadow Banking System, this incredible evaporation of liquidity and at the same time the prices of lots of real assets are increasing (gold aside).
If The Fed could monetise the entire issuance of US Treasuries tomorrow it still wouldn't provide as much liquidity as the Shadow Banking System did, which once upon a time was sized in excess of $10T. All that liquidity is pretty much gone now, and this absence is an absolutely massive deflationary force and its still not clear to exactly what Bernanke's plan to counter this is. Big problem, in spite of the short term good economic news we've been seeing.
And if even they could get the ECB to cooperate and monetise debt as well, two Central Banks busily purchasing all outstanding government paper, they simply don't have the firepower. And, of course, the ECB simply would never do such a thing, they never opened up as much as The Fed did. So the first wave of foreclosures Bernanke was dealing with is upon us and the second is about to start.
In any case, much of Bernankes game plan seems to be sourced from Irving Fisher's Debt-Deflation Theory of Great Depressions [ .pdf ], although back in 1933 nobody would have ever been able to forsee the emergence of the Shadow Banking System, at least not in the scale we observed.
Another concern is US borrowing at the short end of the yield curve; we do see The Fed trying to move out even as demand for short term treasuries falls, but when 10 year money is only yielding about 3.5%, its clear demand for treasuries at that rate is sorta low (since 1995 we've seen an average rate of roughly 5.95% for ten year treasuries)
And gold? Well, while gold isn't in bubble territory yet but the media is seriously stoking fears by citing all sorts of shortages and supply side problems with physical (US and South African Governments both ceasing sales for different reasons) even as one of the larger producers stops selling forward. On a personal note, I'm still actively purchasing metals, both ETFs in my US side brokerage accounts and physical here in London, and my dealer is still experiencing supply problems; not as bad as Q1 when I had to order bullion two to three weeks in advance, but the just last week I wanted to buy fifty oz of Silver and could only get twenty one
Another interesting tidbit is EuroZone stress; Greece is already close to a sovereign default while some of the big funds, emboldened by profitable earlier bets, are now doubling up. If they can push any weaker player into a technical default they will. All that will cause unnatural US dollar strength, perhaps artificially depressing treasury yields in another "flight to safety".
Which will, of course, present another opportunity to purchase undervalued assets as the weaker hands unload.
Interesting times.
posted by Mutant at 8:32 AM on December 16, 2009 [18 favorites]
My choice would've been Glenn Beck. I'm glad I'm not on the decision board for this thing.
posted by naju at 8:38 AM on December 16, 2009
posted by naju at 8:38 AM on December 16, 2009
Somehow I don't think a low interest rate on a savings account is equivalent to being raped. Just me. I only mention this because it seems to be a common turn of phrase on financial boards. Perhaps it's a stronger version of "screwed over," but still.
posted by elwoodwiles at 8:58 AM on December 16, 2009
posted by elwoodwiles at 8:58 AM on December 16, 2009
It's not like he has an Unemployment knob on his desk that he can simply dial down.
Reducing unemployment is one of the Fed's missions, not just setting interest rates. All Bernanke has to do is allow a little more inflation, and businesses and consumers will have incentive to spend before prices go up further. As more money flows into the economy, more employment will result.
posted by jonp72 at 9:12 AM on December 16, 2009
Reducing unemployment is one of the Fed's missions, not just setting interest rates. All Bernanke has to do is allow a little more inflation, and businesses and consumers will have incentive to spend before prices go up further. As more money flows into the economy, more employment will result.
posted by jonp72 at 9:12 AM on December 16, 2009
Mutant: Interesting times.
Yay! I was waiting for Mutant to say something.
posted by shakespeherian at 9:19 AM on December 16, 2009
Yay! I was waiting for Mutant to say something.
posted by shakespeherian at 9:19 AM on December 16, 2009
I suspect many people will continue to believe that the Obama Administration "gave 700 billion" to the banks long after Obama is in the history books, simply because it makes a better spun story right-wing commentators will continue to say over and over to their followers
posted by aught at 9:24 AM on December 16, 2009 [1 favorite]
posted by aught at 9:24 AM on December 16, 2009 [1 favorite]
Being an extremely risk-averse, careful saver and putting your cash in bank accounts is kind of like putting it under a mattress.
How do you think we're going to reduce the untenable trade deficit with China? If the U.S. consumer doesn't start putting money in a mattress rather than spending it, and if the Chinese middle class doesn't start spending orgiastically rather than saving, how do we get rid of this giant time bomb?
posted by spicynuts at 9:26 AM on December 16, 2009
How do you think we're going to reduce the untenable trade deficit with China? If the U.S. consumer doesn't start putting money in a mattress rather than spending it, and if the Chinese middle class doesn't start spending orgiastically rather than saving, how do we get rid of this giant time bomb?
posted by spicynuts at 9:26 AM on December 16, 2009
The story of the year was a weak economy that could have been much, much weaker. Thank the man who runs the Federal Reserve, our mild-mannered economic overlord.Sure, as long as we blame him for the fact it was 'weak' in the first place, since his job is to prevent that thing in the first place. I mean the government that was responsible for regulating the mortgage industry was the federal reserve. But even though they had the statutory power, they didn't want to interfere in the free market, even as poor people were sold garbage loans (even when they could have qualified for better, safer products) Bernanke didn't lift a finger in terms of regulation.
Slightly off topic - can someone who knows stuff tell me if it's true that most of the bailout money has been paid back or is fairly reliably expected to be paid back? I think I've only head from partisan extremists on both sides of this issue, and now I want to hear from a smart person who's paid five bucks for the privilege of telling me.If you loaned ten people $10,000 each, and 8 of them paid you back a month later (so you earned no interest), and the rest went bankrupt, how would you feel?
I think it's hilarious that one of the main reasons banks want to pay back TARP funds is so they can once again pay themselves absurd amounts.Yup, not only that but the way they are paying back the government: by issuing new equity, or issuing bonds means that existing stockholders have to have their shares diluted.or the companies are taking more expensive private loans to pay the back the government. That means that the stock holders are going to lose money by having the banks pay TARP back immediately. They're screwing the stockholders so they can pay themselves higher wages.
---
What's hard for me to understand is why the fed doesn't just loan money directly to individuals. I mean sure, a lot of it wouldn't get paid back, $700 billion is about $2.3k per person. If we just needed liquidity back out into the economy, that probably would have been a good way to do it.
I've read that the fact that so many home owners are still in their homes after defaulting on their mortgages acts as a kind of 'stealth stimulus'. They're not paying rent, so that extra money can go into the economy. That seems like a remarkably cruel solution. If mortgage cram-down legislation had passed that would have done a lot to stabilize things.
Instead, we have a situation where people stay in their homes for months without paying, eventually leaving. The mortgage company loses everything, but if they're a big bank they get TARP plus Federal Reserve Loans. Eventually someone else moves in and pays a lot less. A ton of pain and suffering could have been avoided, but that didn't happen. That kind of situation is going to provide a lot friction and a lot of completely unnecessary suffering.
posted by delmoi at 9:30 AM on December 16, 2009 [2 favorites]
If we just needed liquidity back out into the economy, that probably would have been a good way to do it.
How would you guarantee that enough people spent it rather than saving it without distributing based on ...gasp... 'need'?
posted by spicynuts at 9:33 AM on December 16, 2009
How would you guarantee that enough people spent it rather than saving it without distributing based on ...gasp... 'need'?
posted by spicynuts at 9:33 AM on December 16, 2009
Here's James Kwak on the Baseline Scenario:
posted by delmoi at 9:41 AM on December 16, 2009 [1 favorite]
On Monday, Citigroup received permission from its regulators to buy back the remaining $20 billion in preferred shares held by Treasury because of its investments under TARP. (Treasury invested $25 billion in October 2008 and another $20 billion November 2008; however, $25 billion worth of preferred shares were converted into common shares earlier this year, giving the government about a 34% ownership stake in the bank.) The stock then fell by 6%. What’s going on?etc.
This is another example of a bank doing something stupid in order to say that it is no longer receiving TARP money, and probably more importantly so it can escape executive compensation restrictions. As Citigroup CEO Vikram Pandit himself said last October, TARP capital is really cheap (quoted in David Wessel, In Fed We Trust). Instead of paying an 8% interest rate* on $20 billion in preferred shares, Citigroup chose to issue $17 billion of new common shares while its share price is below $4/share. Citigroup’s cost of equity is certainly more than 8%, so it just increased its overall cost of capital. The stock price fell because existing shareholders are guessing that the dilution they suffered (because new shares were issued) will more than compensate for the fact that Citi no longer has to pay dividends to Treasury.
Paying back the TARP money also makes Citigroup weaker. That’s $20 billion less in cash it has to withstand any potential problems in its asset portfolio. Now, you can say that it compensated by issuing new equity. But those are two separate transactions; Citi could have issued the common shares whether or not it paid back its TARP money. Standing on its own, paying back TARP money is unequivocally bad for the balance sheet.
posted by delmoi at 9:41 AM on December 16, 2009 [1 favorite]
The "Person of the Year" should have been gay marriage. As Dale Carpenter over the the VC points out:
posted by jock@law at 9:50 AM on December 16, 2009
Winning on this issue in the political heart of the country is some consolation after disappointments in Maine and New York. Those losses themselves followed legislative victories in Vermont and New Hampshire, and a wild-card judicial win in Iowa. It’s hard to believe, but all of this happened in 2009.Of course, that might be a little too U.S.-centric. But the number of states (and districts) legalizing gay marriage tripled in 2009. That rate of growth is very unlikely to happen again, and mathematically impossible to happen again more than once (barring some California-style back-and-forth spanning multiple calendar years)
posted by jock@law at 9:50 AM on December 16, 2009
How do you think we're going to reduce the untenable trade deficit with China? If the U.S. consumer doesn't start putting money in a mattress rather than spending it, and if the Chinese middle class doesn't start spending orgiastically rather than saving, how do we get rid of this giant time bomb?
posted by spicynuts
It's my understanding that the "Chinese saving" issue is actually different from how we tend to perceive it. A great deal of it is the government saving vast swaths of money (and often lending it to the U.S. and others). They also have forced savings plans, no safety net (thus saving becomes far more important) and plenty of other issues that make this extremely difficult to compare to the U.S. For instance per capita income in China is just $6,000 compared to $41,800 in the U.S. (in 2008). Factoring in cost of living, etc, etc, etc makes this all extremely complicated to compare. So yes, we need to save more on an individual level, but I think moreso we need to not squander a surplus and start paying down the national debt if we ever get the chance again.
posted by haveanicesummer at 10:11 AM on December 16, 2009
posted by spicynuts
It's my understanding that the "Chinese saving" issue is actually different from how we tend to perceive it. A great deal of it is the government saving vast swaths of money (and often lending it to the U.S. and others). They also have forced savings plans, no safety net (thus saving becomes far more important) and plenty of other issues that make this extremely difficult to compare to the U.S. For instance per capita income in China is just $6,000 compared to $41,800 in the U.S. (in 2008). Factoring in cost of living, etc, etc, etc makes this all extremely complicated to compare. So yes, we need to save more on an individual level, but I think moreso we need to not squander a surplus and start paying down the national debt if we ever get the chance again.
posted by haveanicesummer at 10:11 AM on December 16, 2009
Hate to correct the OP, but Neda Agha-Soltan was listed as a "person who mattered" but not a runner-up. They had Usain Bolt instead. Ultimately, picking Neda would have picked a lot more sense than Bolt. But, novelty beats reality every time with this thing.
posted by l33tpolicywonk at 10:17 AM on December 16, 2009
posted by l33tpolicywonk at 10:17 AM on December 16, 2009
I've won seven times.
1960 U.S. Scientists - How did they even know what my future held?
1966 Twenty-Five and Under - Definitely under.
1969 The Middle Americans - I was in the middle order of my siblings although we were quite poor that year.
1988 Endangered Earth - Okay, not me, but I've lived with the winner.
1993 The Peacemakers - A sobriquet that covered both my aspirations and the missile in my pants.
2002 The Whistleblowers - I seem to recall having a fixation on party-favors that year.
2006 You - Been there, done me.
posted by dances_with_sneetches at 10:25 AM on December 16, 2009 [2 favorites]
1960 U.S. Scientists - How did they even know what my future held?
1966 Twenty-Five and Under - Definitely under.
1969 The Middle Americans - I was in the middle order of my siblings although we were quite poor that year.
1988 Endangered Earth - Okay, not me, but I've lived with the winner.
1993 The Peacemakers - A sobriquet that covered both my aspirations and the missile in my pants.
2002 The Whistleblowers - I seem to recall having a fixation on party-favors that year.
2006 You - Been there, done me.
posted by dances_with_sneetches at 10:25 AM on December 16, 2009 [2 favorites]
Sure, as long as we blame him for the fact it was 'weak' in the first place, since his job is to prevent that thing in the first place. I mean the government that was responsible for regulating the mortgage industry was the federal reserve
To be fair, wasn’t Bernanke only nominated for the fed in 06? By that point the housing bubble was already too far advanced, and the toxic assets were already on the books. We’re allowed to blame Greenspan, affable old man that he is, for doing a lot of bad shit in his day
posted by Think_Long at 10:36 AM on December 16, 2009
To be fair, wasn’t Bernanke only nominated for the fed in 06? By that point the housing bubble was already too far advanced, and the toxic assets were already on the books. We’re allowed to blame Greenspan, affable old man that he is, for doing a lot of bad shit in his day
posted by Think_Long at 10:36 AM on December 16, 2009
codacorolla: How realistic do you think the assertations are that if Bernanke hadn't propped up the banks that we would've had a far worse version of the great depression?
Well, absent other intervention, that's probably correct. I was talking about the Second Great Depression here on Metafilter years before you read about it in the mainstream press. Don't think this makes me a magical oracle or anything: I was just reading the right people. The wording I typically used was along the lines of "something of similar magnitude to the Great Depression", because it wasn't clear at that time whether we would inflate or deflate. I knew we would TRY to inflate, to avoid the deflationary pressure of all that bad debt, but I didn't know if it would be successful. In retrospect, it appears to have been.
In truth, we should have started our depression in about 2001, after the FIRST mania, the stock market bubble, finally popped. Had we allowed the bad debt and bad financial instruments to properly be liquidated at that time, it would have been terrible, but survivable. But then 9/11 happened, and the Fed flooded the system with money, which held things together for a couple of years, until all that cash really and truly ignited the property bubble. That, of course, just set us up for an even BIGGER crash in 2008-ish.
The similarities between the late 1990s and the late 1920s were eerie and striking, to the point that you could read newspaper headlines from either era and confuse them with the other. In both cases, they were bubbles set off by a combination of loose monetary policy and excess optimism... "animal spirits", in the parlance of the economists of yore.
The property bubble was a whole different animal, and that crash would have been catastrophic. At the time I didn't think we should be bailing anyone out at all, because I was so furious at the mess we'd gotten into with our interventionism.
But, in retrospect, I think the "iTulip bailout plan" was probably the right way to go.... letting the big players fail or survive on their own merits, and then loading up the well-run small banks, all over the country, with very cheap money and a directive to start lending. The ultimate goal would be to stabilize the REAL economy, the people actually making stuff and teaching kids and running the power plants, while sluffing off the gambling parasites in Wall Street. And then we could work on a return to fiscal sanity, reducing our debt, and getting ourselves back to actually paying for what we use. This would still be very traumatic to our consumption-obsessed culture, probably the worst times in living memory, but it would have been far less catastrophic.
What I find, over and over again, is that if I disagree with Eric Janszen at iTulip, he's right and I'm wrong.
Do you think that the TARP was just a bandaid, and that worse times are still around the corner.
Around the corner? Probably not. I think we've averted any immediate deflationary crash. I'm suspicious what we'll see now is powerful stagflation, where the economy goes nowhere while the dollar gets weaker and weaker. Unlike in the 1970s, the Fed will not be able to raise interest rates very much to curtail inflation, because that will bankrupt the US government, which is perilously in debt. The inflation will just keep getting worse, because they won't be able to either raise interest rates or stop injecting new money, because of Congress' endless demands for the stuff. This whole business of not paying for the services we're providing has jammed us into a corner.
This is going to take quite awhile to play out. Janszen thinks we'll be seeing inflation by Q1 2010, but it's going to take several years to really get its claws into the system. Over the longer term, he appears to believe that hyperinflation is very likely, where hyperinflation is defined as prices being jacked up with the expectation that replacement goods will be more expensive. When inflation is bad enough that it's actually considered in individual pricing decisions, that's hyperinflation. Janzsen says that up to about a 40% annual inflation rate is survivable, but past that it starts to head toward Zimbabwe. It's my belief that that's the final endgame to the path we're on, and it will be much, much worse than taking our lumps now would have been.
Do you think that the lending structure of the modern economy could've been saved, but in a better manner that didn't reward and perpetuate bad practice?
Well, lending itself is just cooperation to achieve shared goals and split the profit. It's, like, the best thing EVER for economic growth. So yes, of course we can save most of it; it's mostly the meta-operators on top, extracting wealth via speculation and creation of ever-more-exotic financial instruments, that are really killing us.
The iTulip bailout plan would probably have worked pretty well to do this, to get us back to basics. Deep complexity in finance is usually someone taking unfair advantage of someone else.
Time makes the case that Bernanke's solution wasn't pretty, but that it was largely necessary and effective. I know you think it wasn't effective, but would you agree that something was necessary, and if so what?
Well, it was effective, in that we didn't disintegrate, but it wasn't effective in the sense of actually fixing anything. We just punted the ball down the field. We still have all the problems to deal with, along with all the new problems that will be caused by the new round of interventionism.
My original idea had always been to focus on letting the bad players fail, and stepping down on the war machine and stepping up emergency social programs to keep people alive through the very traumatic reshaping of the economy. But, in retrospect, Janzsen's idea was much better.
posted by Malor at 11:19 AM on December 16, 2009 [1 favorite]
Well, absent other intervention, that's probably correct. I was talking about the Second Great Depression here on Metafilter years before you read about it in the mainstream press. Don't think this makes me a magical oracle or anything: I was just reading the right people. The wording I typically used was along the lines of "something of similar magnitude to the Great Depression", because it wasn't clear at that time whether we would inflate or deflate. I knew we would TRY to inflate, to avoid the deflationary pressure of all that bad debt, but I didn't know if it would be successful. In retrospect, it appears to have been.
In truth, we should have started our depression in about 2001, after the FIRST mania, the stock market bubble, finally popped. Had we allowed the bad debt and bad financial instruments to properly be liquidated at that time, it would have been terrible, but survivable. But then 9/11 happened, and the Fed flooded the system with money, which held things together for a couple of years, until all that cash really and truly ignited the property bubble. That, of course, just set us up for an even BIGGER crash in 2008-ish.
The similarities between the late 1990s and the late 1920s were eerie and striking, to the point that you could read newspaper headlines from either era and confuse them with the other. In both cases, they were bubbles set off by a combination of loose monetary policy and excess optimism... "animal spirits", in the parlance of the economists of yore.
The property bubble was a whole different animal, and that crash would have been catastrophic. At the time I didn't think we should be bailing anyone out at all, because I was so furious at the mess we'd gotten into with our interventionism.
But, in retrospect, I think the "iTulip bailout plan" was probably the right way to go.... letting the big players fail or survive on their own merits, and then loading up the well-run small banks, all over the country, with very cheap money and a directive to start lending. The ultimate goal would be to stabilize the REAL economy, the people actually making stuff and teaching kids and running the power plants, while sluffing off the gambling parasites in Wall Street. And then we could work on a return to fiscal sanity, reducing our debt, and getting ourselves back to actually paying for what we use. This would still be very traumatic to our consumption-obsessed culture, probably the worst times in living memory, but it would have been far less catastrophic.
What I find, over and over again, is that if I disagree with Eric Janszen at iTulip, he's right and I'm wrong.
Do you think that the TARP was just a bandaid, and that worse times are still around the corner.
Around the corner? Probably not. I think we've averted any immediate deflationary crash. I'm suspicious what we'll see now is powerful stagflation, where the economy goes nowhere while the dollar gets weaker and weaker. Unlike in the 1970s, the Fed will not be able to raise interest rates very much to curtail inflation, because that will bankrupt the US government, which is perilously in debt. The inflation will just keep getting worse, because they won't be able to either raise interest rates or stop injecting new money, because of Congress' endless demands for the stuff. This whole business of not paying for the services we're providing has jammed us into a corner.
This is going to take quite awhile to play out. Janszen thinks we'll be seeing inflation by Q1 2010, but it's going to take several years to really get its claws into the system. Over the longer term, he appears to believe that hyperinflation is very likely, where hyperinflation is defined as prices being jacked up with the expectation that replacement goods will be more expensive. When inflation is bad enough that it's actually considered in individual pricing decisions, that's hyperinflation. Janzsen says that up to about a 40% annual inflation rate is survivable, but past that it starts to head toward Zimbabwe. It's my belief that that's the final endgame to the path we're on, and it will be much, much worse than taking our lumps now would have been.
Do you think that the lending structure of the modern economy could've been saved, but in a better manner that didn't reward and perpetuate bad practice?
Well, lending itself is just cooperation to achieve shared goals and split the profit. It's, like, the best thing EVER for economic growth. So yes, of course we can save most of it; it's mostly the meta-operators on top, extracting wealth via speculation and creation of ever-more-exotic financial instruments, that are really killing us.
The iTulip bailout plan would probably have worked pretty well to do this, to get us back to basics. Deep complexity in finance is usually someone taking unfair advantage of someone else.
Time makes the case that Bernanke's solution wasn't pretty, but that it was largely necessary and effective. I know you think it wasn't effective, but would you agree that something was necessary, and if so what?
Well, it was effective, in that we didn't disintegrate, but it wasn't effective in the sense of actually fixing anything. We just punted the ball down the field. We still have all the problems to deal with, along with all the new problems that will be caused by the new round of interventionism.
My original idea had always been to focus on letting the bad players fail, and stepping down on the war machine and stepping up emergency social programs to keep people alive through the very traumatic reshaping of the economy. But, in retrospect, Janzsen's idea was much better.
posted by Malor at 11:19 AM on December 16, 2009 [1 favorite]
The Fed holds rates, cites “low rates of resource utilization, subdued inflation trends, and stable inflation expectations. Inflation will remain subdued for some time”
While everything is pointing to continued deflation, it will be especially fascinating to see if deflation persists and expands outside of Japan.
posted by Mutant at 11:24 AM on December 16, 2009
While everything is pointing to continued deflation, it will be especially fascinating to see if deflation persists and expands outside of Japan.
posted by Mutant at 11:24 AM on December 16, 2009
Oh, also note that I'm entirely skipping the very central role that the GSEs played in the bubble, Fannie Mae and Freddie Mac. They were an absolutely critical component to the mess. Economics is kind of like fractals... the closer you look the more complex it gets, seemingly without limit.
But the whole banking system is under the Fed's remit, and the bubble could have been stopped overnight by simply constraining money supply and raising interest rates. Ultimately, the property bubble was Greenspan's fault. Bernanke's interventions won't really start to hurt for some time yet, and we don't yet know how they'll play out.
The things we do know: no real problems have been solved, and we spent enough money not solving those problems to free the slaves, defeat Imperial Japan, and destroy Nazi Germany.
posted by Malor at 11:26 AM on December 16, 2009 [1 favorite]
But the whole banking system is under the Fed's remit, and the bubble could have been stopped overnight by simply constraining money supply and raising interest rates. Ultimately, the property bubble was Greenspan's fault. Bernanke's interventions won't really start to hurt for some time yet, and we don't yet know how they'll play out.
The things we do know: no real problems have been solved, and we spent enough money not solving those problems to free the slaves, defeat Imperial Japan, and destroy Nazi Germany.
posted by Malor at 11:26 AM on December 16, 2009 [1 favorite]
I hope the TARP funds don't get paid back, otherwise politicians will be more likely to do it again.
Unfortunately I currently owe $0 in TARP repayments, but gladly would take a billion or two.
posted by blue_beetle at 11:37 AM on December 16, 2009
Unfortunately I currently owe $0 in TARP repayments, but gladly would take a billion or two.
posted by blue_beetle at 11:37 AM on December 16, 2009
In case anyone's interested I pretty much routinely dl The Feds' Flow of Funds data; released quarterly, it is an incredibly comprehensive resource, useful if you'd like to track this stuff on your own (as opposed to reading about it here or a 'blog / news story).
The current release in its entierty, dated December 10th, 2009 is here, and reading through it really helps one develop independent analysis skills.
I've uploaded a particular summary - Debt Growth by Sector - to Google Docs here.
Its a particularly interesting part of the Flow of Funds report as this component helps one understand what's really going on in the economy, and at a fairly low level. I tell my students at University reading this is key to developing independent thought, and understanding precisely what's going on.
Decembers release is a very fascinating for many reasons; let's take it by sector:
This is so counter intuitive to me, as that steep yield curve is just an profit engine for banks, as they borrow cheaply at the short end, lending at much higher rates longer term (managing, of course, the maturity mismatch that naturally results, but this is pretty basic risk management so no worries here).
Next Flow of Funds is expected Thursday, March 11th, 2010, with at least one FOMC meeting taking place before, tentatively scheduled for January 26th & 27th 2010 (N.B., The Fed doesn't always stick to their schedule precisely, they have been known to switch by a week here and there, but they ALWAYS hold eight meetings per year).
So barring some other left field event (EU bust up, one of the many asset bubbles currently inflating popping, etc) things should be relatively steady for a short while.
Hope someone finds this data interesting!
posted by Mutant at 12:35 PM on December 16, 2009 [7 favorites]
The current release in its entierty, dated December 10th, 2009 is here, and reading through it really helps one develop independent analysis skills.
I've uploaded a particular summary - Debt Growth by Sector - to Google Docs here.
Its a particularly interesting part of the Flow of Funds report as this component helps one understand what's really going on in the economy, and at a fairly low level. I tell my students at University reading this is key to developing independent thought, and understanding precisely what's going on.
Decembers release is a very fascinating for many reasons; let's take it by sector:
- We're still seeing declines in borrowing by households, a factor that seems to be accelerating Q3 2009 showed a 2.5% decline, following declines in Q2 2009 (-1.6%), Q1 2009 (-1.2%) and Q4 2008 (-1.8%). The biggest component of this seems to lie in consumer credit, which outpaces the decline in mortgage related debt by a wide margin. So it seems folks are winding down discretionary purchases (esp on credit) in favour of the keeping the house.
- Curiously, business related debt growth only started to decline last quarter. This implies business kept borrowing into the decline and only now are cutting back. It will be interesting to see if this reverts in Q4 or we've established a trend here. If the latter, further rate hikes would more than likely be on hold.
- Now The Fed is the big borrower here (no surprise) expanding their balance sheets significantly with quarter by quarter growth as follows: Q3 2008 39.2%, Q4 2008 37%, Q1 2009 22.6%, Q2 2009 28.2% and Q3 2009 20.6% respectively. Interesting trend, even more so as we know The Fed has been testing the proposed repo based approach to unwinding quantitative easing.
This is so counter intuitive to me, as that steep yield curve is just an profit engine for banks, as they borrow cheaply at the short end, lending at much higher rates longer term (managing, of course, the maturity mismatch that naturally results, but this is pretty basic risk management so no worries here).
Next Flow of Funds is expected Thursday, March 11th, 2010, with at least one FOMC meeting taking place before, tentatively scheduled for January 26th & 27th 2010 (N.B., The Fed doesn't always stick to their schedule precisely, they have been known to switch by a week here and there, but they ALWAYS hold eight meetings per year).
So barring some other left field event (EU bust up, one of the many asset bubbles currently inflating popping, etc) things should be relatively steady for a short while.
Hope someone finds this data interesting!
posted by Mutant at 12:35 PM on December 16, 2009 [7 favorites]
Hope someone finds this data interesting!
yes, it was seeing the borrowing in "Mortgage debt on nonfarm homes" on Table L.10 that opened my eyes to the scale of the overextension. From $8T in 2004 to $11T at the peak implied to me that there was $3T of bad debt, which was pretty much right on the money.
Looks like my S&P 1050 call is still holding, LOL :)
We're still seeing declines in borrowing by households, a factor that seems to be accelerating Q3 2009 showed a 2.5% decline,
How much is this charge-offs? Consumer credit was held low this decade thanks to the housing ATM.
Now The Fed is the big borrower here (no surprise) expanding their balance sheets significantly
? Borrower? Printing more like, no?
But then 9/11 happened, and the Fed flooded the system with money, which held things together for a couple of years, until all that cash really and truly ignited the property bubble. That, of course, just set us up for an even BIGGER crash in 2008-ish.
I kinda disagree with this. IMO it wasn't Fed action that caused the speculative blow-off, but Fed inaction in allowing lending standards to fall.
Maybe they were too far from the trenches and didn't know that Casey Serins were running around obtaining millions in fraudulent mortgages, and that the mortgage industry was more than willing accomplices in this massive abuse of the financial system.
The income tax cuts of 2001 & 2003, coupled with the rate cuts, got the RE ball rolling, but it was the wholesale abandonment of lending underwriting that pushed valuations up in the blowoff peak of 2005-2006.
No doc to sidestep income/debt limits, qualifying borrowers on the neg-am teaser rate -- THAT's how the housing market got too high for its own good.
Also, once the Fed started raising rates in 2004 it found it lost control over mortgage rates, which stayed in the 6% range from 2003-2006.
posted by tad at 8:53 PM on December 16, 2009
yes, it was seeing the borrowing in "Mortgage debt on nonfarm homes" on Table L.10 that opened my eyes to the scale of the overextension. From $8T in 2004 to $11T at the peak implied to me that there was $3T of bad debt, which was pretty much right on the money.
Looks like my S&P 1050 call is still holding, LOL :)
We're still seeing declines in borrowing by households, a factor that seems to be accelerating Q3 2009 showed a 2.5% decline,
How much is this charge-offs? Consumer credit was held low this decade thanks to the housing ATM.
Now The Fed is the big borrower here (no surprise) expanding their balance sheets significantly
? Borrower? Printing more like, no?
But then 9/11 happened, and the Fed flooded the system with money, which held things together for a couple of years, until all that cash really and truly ignited the property bubble. That, of course, just set us up for an even BIGGER crash in 2008-ish.
I kinda disagree with this. IMO it wasn't Fed action that caused the speculative blow-off, but Fed inaction in allowing lending standards to fall.
Maybe they were too far from the trenches and didn't know that Casey Serins were running around obtaining millions in fraudulent mortgages, and that the mortgage industry was more than willing accomplices in this massive abuse of the financial system.
The income tax cuts of 2001 & 2003, coupled with the rate cuts, got the RE ball rolling, but it was the wholesale abandonment of lending underwriting that pushed valuations up in the blowoff peak of 2005-2006.
No doc to sidestep income/debt limits, qualifying borrowers on the neg-am teaser rate -- THAT's how the housing market got too high for its own good.
Also, once the Fed started raising rates in 2004 it found it lost control over mortgage rates, which stayed in the 6% range from 2003-2006.
posted by tad at 8:53 PM on December 16, 2009
I absolutely love Bill Fleckenstein over at Fleckenstein Capital (pay service), and this is what he had to say about Bernanke's win.
TIME Looks for Greatness in All the Wrong Placesposted by Malor at 5:37 AM on December 17, 2009
As this will be the next-to-last column I write before the decade ends, and given the fact that Time Magazine chose to anoint Ben Bernanke Man of the Year, I thought I would share my opinion on the subject.
First of all, Bernanke's being made Man of the Year is an ironic bookend to the fact that Greenspan, along with Robert Rubin -- another financial operator who seemed to have little actual understanding of the financial system, as he was paid tens of millions of dollars to help preside over Citigroup's destruction -- were Men of the Year in 1999. That dual anointing was apparently a function of their guiding America (and, by extension, the world) so brilliantly through the Long-Term Capital Management fiasco in late 1998.
Of course, the eventual trouble precipitated by an anything-goes mentality brewing in the wild and crazy banking system -- and NOT realizing that speculation run amok could threaten the financial system --caused Greenspan to behave as he did. His action and words fomented the stock mania, which sent prices high enough such that now, one decade later, the market has generated a total return just shy of minus 10% -- the worst decade in history for stocks. (For perspective, the 1930s yielded a modest loss of about 0.3%.)
Guys That Only Had Eyes for Moneyprinting
All of which reminds me that during the stock mania, I used to try to explain to people that while printing money seemed like so much fun, the attendant consequences were never worth it. That argument was lost on people as they were delirious with chasing stocks and uttering the battle cry: Where else can one put one's money? -- as though that meant it had to be a good idea.
Fast-forward to today. In the wake of the real-estate bubble, I think some people are beginning to understand that the consequences of moneyprinting are never worth the supposed benefits before all of it turns to disaster. Of course, all of that is lost on Time Magazine as they give their Man of the Year award to Ben. On the other hand, had they not done that, they wouldn't have been able to help me frame this story as I've just done.
I believe that this "lost decade" is worth thinking about -- because if the country is to ever get away from the dangers created by allowing a group of bureaucrats try to pick the right interest rate with which to run the world, then the public first has to recognize the consequences of letting them do that. Perhaps this line of logic that I have just shared will be thought about by others, and that will help promote change, at least I hope so.
The story of the year was a weak economy that could have been much, much weaker.
Is this like giving the Nobel Prize for not fucking the world up more? I'm sensing that "Hey, at least we're alive" is kind of the theme this year for underwhelming prize giving. Thinking back on it, I guess nobody has actually done anything too awesome this year.
ENTIRE WORLD! Let's do better in '10!
posted by grapefruitmoon at 7:28 AM on December 17, 2009
Is this like giving the Nobel Prize for not fucking the world up more? I'm sensing that "Hey, at least we're alive" is kind of the theme this year for underwhelming prize giving. Thinking back on it, I guess nobody has actually done anything too awesome this year.
ENTIRE WORLD! Let's do better in '10!
posted by grapefruitmoon at 7:28 AM on December 17, 2009
In a related story the NFL's coach of the year is Eric Mangini of Cleveland, simply for keeping his job as the team around him blows beyond belief and he is an overpaid disgrace.
As a matter of fact, let's name him Man Of The Year as well as Vanilla Ice, Taco, Boy George and that creepy Six Flags old man who needs to be put down.
Love that economy-glad to see that it could be worse than 10% unemployment for someone to not win such an award.
posted by chudbeagle at 12:08 PM on December 17, 2009
As a matter of fact, let's name him Man Of The Year as well as Vanilla Ice, Taco, Boy George and that creepy Six Flags old man who needs to be put down.
Love that economy-glad to see that it could be worse than 10% unemployment for someone to not win such an award.
posted by chudbeagle at 12:08 PM on December 17, 2009
tad -- "How much is this charge-offs? Consumer credit was held low this decade thanks to the housing ATM."
The Fed has some revised data here, broken down by month and by credit type i.e., revolving or non revolving; this report provides a much more granular view of the consumer position of October 2009. Straight from their summary
Conclusion: inflation still seems to be tomorrows trade. Little static in PPI numbers here and there, but we still haven't seen anything major, so far at least. Keep watching the data is all one can do really.
tad -- "Looks like my S&P 1050 call is still holding, LOL :)"
Well we're are seeing a broad based retrenchment today, with the S&P losing about 1% (close is about thirty minutes out but downside moves seems to be picking up steam) so you just need another four percent or so and you're there.
That being said, this doesn't seem like anything to get too worked up over; everything, almost absolutely everything tradeable was getting frothy anyway, and traders wanted to lock in profits ahead of the holiday so this wasn't unexpected, no matter what news The Fed brought.
grapefruitmoon -- "Thinking back on it, I guess nobody has actually done anything too awesome this year."
Hey we survived. That's what was awesome. Go back and look at the some of the undeniably grim economic news last January, then go back and read some of the doomsday scenarios posted here.
Economy is still holding together, 90% or so of the US Labour force are still in employment, taxes are being paid and things could have easily been a lot worse.
Lots of room for improvement though, and I agree overall with your sentiment; 2010 will have to be a lot better.
posted by Mutant at 12:33 PM on December 17, 2009
The Fed has some revised data here, broken down by month and by credit type i.e., revolving or non revolving; this report provides a much more granular view of the consumer position of October 2009. Straight from their summary
Consumer credit decreased at an annual rate of 3-1/4 percent in the third quarter of 2009. Revolving credit decreased at an annual rate of 7-1/4 percent, and nonrevolving credit decreased at an annual rate of 1 percent. In October, consumer credit decreased at an annual rate of 1-3/4 percent.Rather nasty credit contraction, to say the least. A couple of other items of interest from my list of interesting stuff:
- Credit card defaults seemed poise to push higher, according to data compiled by Fitch; even though chargeoffs fell to 10.09% (October) from 10.75% (September), we're seeing payment delays inch back up to 4.41% (October) from 4.22% (September), so it seems June's record high of 4.45% is likely to be surpassed.
- Note this is sorta troubling: the Employment / Population ratio has fallen back to 1982 levels (note you might have to fiddle with the charts controls a little, sorry there isn't a persistent link). So if we project forward a similar collapse in the Household Debt/Income ratio we'd probably be seeing another $4 to $6 Trillion (depending upon whose data you reference) of deleveraging yet to come.
Conclusion: inflation still seems to be tomorrows trade. Little static in PPI numbers here and there, but we still haven't seen anything major, so far at least. Keep watching the data is all one can do really.
tad -- "Looks like my S&P 1050 call is still holding, LOL :)"
Well we're are seeing a broad based retrenchment today, with the S&P losing about 1% (close is about thirty minutes out but downside moves seems to be picking up steam) so you just need another four percent or so and you're there.
That being said, this doesn't seem like anything to get too worked up over; everything, almost absolutely everything tradeable was getting frothy anyway, and traders wanted to lock in profits ahead of the holiday so this wasn't unexpected, no matter what news The Fed brought.
grapefruitmoon -- "Thinking back on it, I guess nobody has actually done anything too awesome this year."
Hey we survived. That's what was awesome. Go back and look at the some of the undeniably grim economic news last January, then go back and read some of the doomsday scenarios posted here.
Economy is still holding together, 90% or so of the US Labour force are still in employment, taxes are being paid and things could have easily been a lot worse.
Lots of room for improvement though, and I agree overall with your sentiment; 2010 will have to be a lot better.
posted by Mutant at 12:33 PM on December 17, 2009
- "Thinking back on it, I guess nobody has actually done anything too awesome this year."
Hey we survived. That's what was awesome.
That was also the first half of my comment. Whooo recursive commenting.
posted by grapefruitmoon at 12:44 PM on December 17, 2009
Hey we survived. That's what was awesome.
That was also the first half of my comment. Whooo recursive commenting.
posted by grapefruitmoon at 12:44 PM on December 17, 2009
If nothing else, Bernanke held the economy together this long, giving those that retained their jobs the chance to pay down some debt or save a little money.
I tend to lean toward Malor's idea that there is still more pain ahead, and Mutant's call of several trillion more to deleverage agrees with that.
posted by bystander at 8:20 PM on December 17, 2009
I tend to lean toward Malor's idea that there is still more pain ahead, and Mutant's call of several trillion more to deleverage agrees with that.
posted by bystander at 8:20 PM on December 17, 2009
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