Bits Bucket for August 4, 2013
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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the vindication of standard oil and the indictment of the sherman anti-trust act.
j. d. rockefeller wasn’t a ‘nice guy’ or any other kind of do-gooder. as a matter of fact he briefly tried price fixing once, and the free market ate him alive. he lost money and he never tried it again. his ambition made him rich and also improved the lives of everyone else in the country. the nation grew wealthier from his efforts.
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Vindicating Standard Oil, 100 years later
Alex Epstein
Sunday marks the 100th anniversary of the Supreme Court ruling that found Standard Oil guilty of violating the Sherman Antitrust Act. As punishment, the world’s largest and most successful oil company was broken into 34 pieces.
Ever since, Standard Oil has served as the textbook example of why we need antitrust law. The Court’s decision affirmed a popular account of Standard Oil’s success, first made famous by journalists Henry Demarest Lloyd and Ida Tarbell. In the absence of antitrust laws, the story goes, Standard attained a 90% share of the oil-refining market through unfair and destructive practices such as preferential railroad rebates and “predatory pricing”; Standard then leveraged its unfair advantages to eliminate competition, control the market, and dictate prices. In Lloyd’s words, Standard was “making us pay what it pleases for kerosene.”
Was it? In 1865, when Rockefeller’s market share was still minuscule, a gallon of kerosene cost 58 cents. In 1870, Standard’s market share was 4%, and a gallon cost 26 cents. By 1880, when Standard’s market share had skyrocketed to 90%, a gallon cost only 9 cents — and a decade later, with Standard’s market share still at 90%, the price was 7 cents. These data point to the real cause of Standard Oil’s success — its ability to charge the lowest prices by producing kerosene with unparalleled efficiency.
John D. Rockefeller had a rare business mind. He was at once a visionary, foreseeing a world in which his kerosene illuminated millions of homes, and an accountant obsessed with day-to-day penny-pinching. Upon buying his first refinery in 1863 at the age of 23, Rockefeller started optimizing every part of his business, from his storage facilities to his refining methods to the number of non-kerosene-refined products (waxes, lubricants, etc.) that could be squeezed from every barrel.
In pursuit of efficiency, Rockefeller employed then-rare business strategies such as vertical integration and economies of scale. For example, by purchasing his own forest and producing his own barrels, Rockefeller lowered per-barrel costs from $3 to $1 while increasing reliability and quality. To transport oil, Rockefeller obtained large rebates from railroads, not through corrupt conspiracies (the typical explanation) but by dramatically lowering the railroads’ costs. Where others offered railroads unreliable, highly variable traffic, Rockefeller offered guaranteed daily fleets of Standard-owned tank cars, loaded and unloaded by Standard-provided facilities, for straight-line trips from Cleveland to New York. The Lake Shore Railroad’s James Devereux testified that Standard Oil lowered transport costs from $900,000 to $300,000 a trip.
Rockefeller was simply a man ahead of his time — and his competition. In the 1860s, refining was a comfortable business; high demand for kerosene plus low supply of refining capacity made for hefty profit margins, even for outfits with mediocre efficiency. Rockefeller, foreseeing that refining capacity would grow to meet demand, was prepared for much lower prices; others weren’t. By 1871, refining capacity exceeded oil production, and three-quarters of the industry was losing money.
Rockefeller saw an opportunity to buy out competitors and put their talent and assets to more efficient use. Rockefeller would typically show his books to a prospect, wait for him to be “thunderstruck” (as one observer put it) by Standard’s efficiency, and then make a reasonable offer. If a target resisted, Rockefeller would win over their customers by charging a low price that was profitable for Standard but extremely unprofitable for others.
Rockefeller’s goal in expanding was to become more and more efficient, improving his competitive advantage with ever-lower but still-profitable prices. He knew he didn’t “control” the market and thus couldn’t get away with high prices. This truth was painfully reinforced in the early 1870s when Rockefeller foolishly agreed to join two oil-refining cartels (the South Improvement Company and the Pittsburgh Plan) designed to suppress output and drive up prices; both were quickly competed out of existence. Since a private company, unlike a government-granted monopoly, couldn’t force competitors out of the market, customers could and would go elsewhere the second they found a better deal from clever competitors.
Offering the best deal is how Standard maintained a 90% market share for two decades, from 1879 to 1899, despite strong competitive challenges and an ever-changing market. New, formidable competitors from Russia to Pennsylvania were emulating Rockefeller’s methods; pipelines became a leading form of oil transport; crude supplies appeared to be running short; and the electric light bulb emerged as a fundamental challenge to kerosene oil lamps. Rockefeller’s response was more innovation and efficiency, including millions invested in scientific research to make high-sulfur oil, plentiful but previously useless, usable.
By 1907, four years before Standard Oil’s breakup, the company’s market share had fallen to 68%, partly because the rest of the oil industry had learned a lot from Standard about oil refining and efficiency. Rockefeller had not stopped competition — he had raised the bar by creating a modern, scientific oil company before anyone else did.
In the process, he had enriched tens of millions of lives by bringing affordable illumination to homes and businesses across the country. If Standard Oil is the textbook example of the kind of company antitrust laws are supposed to punish, what does that say about antitrust laws? As Google, Apple, and other highly successful companies are targeted for antitrust prosecution, this question is as relevant today as it was a hundred years ago.
dailycaller.com
The success of insurance industry’s exemption from the Sherman-Anti Trust act shows the time is now to get rid of that antique law.
Agreed. We need to replace the Sherman Act with an anti-monopoly measure that actually works.
Oh knock it off. Standard Oil was a price-fixing cartel that manipulated fuel prices to force smaller concerns (and those who depended upon them for their own livelihood) out of business entirely, ultimately establishing a de facto dictatorship without accountability — to the extent that it led our country into at least one and likely two world wars.
Ayn Randism at it’s most insidious.
Standard Oil was a price-fixing cartel
as usual, nothing to back up the assertion. tell us how standard oil engaged in price fixing, other than the one time the article mentioned.
AYFKM? Here are 1,780,000 “nothings” to get you started:
http://bit.ly/12SgbUI
Not going to waste anymore of my time on your silliness today.
Not going to waste anymore of my time on your silliness today.
yes, because you’ve proven you can’t back up what you say.
“Was it? In 1865, when Rockefeller’s market share was still minuscule, a gallon of kerosene cost 58 cents. In 1870, Standard’s market share was 4%, and a gallon cost 26 cents. By 1880, when Standard’s market share had skyrocketed to 90%, a gallon cost only 9 cents — and a decade later, with Standard’s market share still at 90%, the price was 7 cents. These data point to the real cause of Standard Oil’s success — its ability to charge the lowest prices by producing kerosene with unparalleled efficiency.”
The fact that the kerosene price fell over the period from 1865 to 1890 does not preclude the possibility that it would have fallen much further with increased competition.
The fact that the kerosene price fell over the period from 1865 to 1890 does not preclude the possibility that it would have fallen much further with increased competition.
no one could produce the kerosene at that price except standard oil.
when he did try to fix the price competition immediately rose and undercut him. he learned a big lesson in a short time.
It’s not Standard(or any other outfit, fill in the blank) doing the price fixing. It’s Federal Reserve proxies on Wall St and off shore. The natural course is deflation and they’re doing anything and everything to preclude it…. including price fixing.
Revisionist history.
Add this to the “Confederacy was fighting for their rights” file.
(What State’s Rights? The right to own slaves, mainly)
Revisionist history.
what specifically was revised?
Production rate of oil caused decrease in kerosene pricess.
Production rate of oil caused decrease in kerosene pricess.
that’s not what the article said. it said that prices fell due to the efficiency of production. efficiency can lower the cost of production without increasing the amount of production. for instance, he produced his own barrels to reduce the price of his main product, kerosene.
yes, he foresaw the increasing consumption from lower prices and he did increase production. but he didn’t do it until he thought he could do it without crashing the price of his product, or having huge amounts to store.
The article is wrong.
Pure revisionist bullcrap.
It’s hard to believe that it took 100 years for financial monopolists’ propaganda efforts to finally catch up to the Sherman Antitrust Act.
facts are nearly always propaganda to the indoctrinated.
Propaganda is nearly always the subject of your posts.
to the indoctrinated.
You just proved Whac’s point, tj.
Why waste your virtual ink defending Standard Oil? Wouldn’t it keep you sufficiently busy to explain why too-big-to-fail banks are good for America?
Why waste your virtual ink defending Standard Oil?
it’s in defense of free markets which isn’t a waste of virtual ink.
Wouldn’t it keep you sufficiently busy to explain why too-big-to-fail banks are good for America?
ah yes, you’re master of the loaded question fallacy. btw, have you stopped beating your wife?
to answer your loaded question.. nothing is too big to fail. that makes your loaded question mute.
Arguing with yourself again, I see…
could be.. you’re not much to argue with.
I’ve learned from posters like you how boring and pointless it is to argue with propagandists.
i’ve learned from posters like you how boring and pointless it is to argue with the indoctrinated.
I’ve learned from posters like you that some posters can’t think of an original sentence.
i’ve learned from posters like you that some posters can’t think.
I’ve learned from posters like you that those who can’t think post propaganda, then claim victory over anyone who calls them on it.
“I helped make Mexico, especially Tampico, safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefits of Wall Street. The record of racketeering is long. I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-1912 (where have I heard that name before?). I brought light to the Dominican Republic for American sugar interests in 1916. In China I helped to see to it that Standard Oil went its way unmolested.”
– Smedley Butler, Marine Corps Major General and recipient of two Medals of Honor
Business is essential to improving the standard of living of the society. When operating in society’s interest, it is the pump which generates wealth. In some cases however it destroys wealth, and creates a Reverse Robin Hood effect, like a Mafia, serving to extract and concentrate wealth.
The society must determine whether the business is helpful or harmful to it.
There are those who believe societies exist to serve businesses. I hear this POV from Limbaugh all the time. His show has become the CEO fluffing hour. I would love to hear his take on Mafias and whether they should be allowed to exist, and why or why not. These are businesses which enrich their owners.
“His show has become the CEO fluffing hour.”
At least he is bright enough to know who butters his bread.
blah,blah,blah,blah, now tell us about how many taxes are levied by the govt.today on oil at the various levels. And the cost per gallon of oil.
Time to make the coffee…
Eating dinner after a lovely South China Sea sail and seafood lunch.
Going to the symphony tonite?
Is that FPSS?
An entire sentence without sounding rude or arrogant ? No, it’s probably a separate person.
Sounds delightfully exotic!
DB, Please describe in succulent detail?
Go on, punish us with your gloat-fest. ‘-(
No gloat, just an unvarnished fragment of truth. But it was not “all that” as they say. There was some danger and fear involved - the ocean is a big place and unforgiving to the unprepared.
The food was amazing and local. The weather was really spectacular - blue sky, steady wind and just hot enough for enjoying the sea - rather then the usual solar death that has everyone lathered in greasy white oxide and hidden beneath multiple hats and long sleeves.
My nautical jinx was again confirmed - the boat broke and we had to signal one of the few open water jetski maniacs to ferry one of our group to shore (maybe it was only to cell range) so that a rescue boat could be immediately sent out and a tow arranged for today. But then the “rescue” boat was too small for our number and another, larger boat had to be dispatched. But once that boat arrived it was only a short trip in to Sai Kung and our lovely day continued. We, the wife and I, strolled along the promenade in the lowering Sun enjoying first an iced Mocha and then a pair of vanilla drumsticks ( two for 13HK$).
Now to manage the repair and the inevitable repair redux…
In housing bubble news, I offer this;
Pass curbs now, Tsang warns
Karen Chiu The Standard
Monday, August 05, 2013
Financial Secretary John Tsang Chun- wah urged lawmakers to pass legislation on housing curbs as soon as possible.
Otherwise, he warned, irrational exuberance may re-emerge in the property market.
Tsang wrote on his blog that legislation of buyer’s stamp duties, the second round of special stamp duties and doubled stamp duties are still pending.
For the doubled stamp duty, lawmakers have passed an unbinding motion to request the government to withdraw the measure.
“I worry as, with these laws not passed after such a long period, the market may suspect the Legislative Council does not support these measures,” he said. “This may spark irrational exuberance again.”
If you take on mortgage debt at current massively inflated housing prices, you’ll enslave yourself for the rest of your life.
“Debt is bondage.”~ Suze Orman, May 11, 2013
buy a house and there’s a pretty good chance some free cash will end up in your lap.
“Why buy a house today at massively inflated asking prices? Buy later after prices crater for 65% less.”
u should short the housing market. you would have been wrong the past couple years though.
as long as the printing presses continue and the ten year yield stays low this party is gonna last awhile.
buy a house and make quick cash. Stay greedy my friend.
“Todays housing sale at an inflated price is tomorrows default and massive loss.”
You are correct.
r u depressed caused you missed out on free equity this time around too?
“Housing is never an investment. Housing is a depreciating asset and a loss, always.”
Exactly.
more suze dvds today?
jump on board the crazy train and let ben bernake shower you with equity.
“Why buy now what you can rent for half the monthly cost?”
Good point. Then buyer later when prices roll back to early 1990’s levels.
they wont let that happen. property taxes need to be high to pay huge salaries.
“property taxes need to be high to pay huge salaries.”
The likely tacit collusion of local government officials in the nationwide effort to prop up housing prices has only gradually dawned on me since I started bubble watching. But as you suggest, if local government income is based on the residential tax base, wouldn’t higher housing prices mean higher income to the local government?
It’s even better if you can get foreign investors locked into a high tax basis, as then the economic hit of paying those taxes lands outside the local economy.
The local governments are all tied to real estate, even beyond the tax base issue. The friends and relatives and cronies and political backers of the local politicians are usually very tied in to the local RE market. Developers control local governments. They’ve always wanted nothing but higher real estate prices.
“The friends and relatives and cronies and political backers of the local politicians are usually very tied in to the local RE market.”
Good point. Today’s political donation = tomorrow’s political favor — unless the mayor gets recalled!
Not that there is anything wrong with that, as payments to politicians are free speech protected by the First Amendment to the U.S. Constitution.
Mayor Bob Filner’s post-election day campaign donors released
Donations go to pay campaign debt
Bob Filner inauguration
Posted: 07/31/2013
Last Updated: 5 days ago
SAN DIEGO - Mayor Bob Filner’s campaign disclosures posted Tuesday show several high-level employees of development companies helped pay Filner’s campaign debt.
According to the filings, the donations were made after the election through June 30, which is allowed by law.
Below is a partial list. The public can access the full campaign disclosure filings on the city clerk’s website. (Mobile users: http://bit.ly/131ncNI)
David Poole, vice president of Brookfield Homes, gave $500, received on Dec. 11
Michael McGee, president of Pardee Homes, gave $250, received on Dec. 7.
Christopher Hallman, an executive with Pardee Homes, gave $250, received on Dec. 7.
Amy Glad, of Los Angeles, a senior vice president at Pardee Homes, gave $500, received on Dec. 7.
Mary Elizabeth Fischer, a manager at Pardee Homes, gave $500, received on Dec. 7.
Anthony Dolin, of Manhattan Beach, who works in finance for Pardee Homes, gave $250, received on Dec. 5.
John Arvin, of Manhattan Beach, senior vice president land development at Pardee Homes, gave $250, received on Dec. 7. Arvin gave another $250, received on March 12.
Jon Lash, of Rancho Palos Verdes, an executive vice president at Pardee Homes, gave $250, received March 12.
Gary Probert, of Los Angels, a senior vice president at Pardee Homes, gave $250, received March 12.
John Anglin, of Camarillo, working in residential development for Pardee Homes, gave $25, received on Dec. 7.
Michael Neal, president and CEO of H.G. Fenton Company, gave $500, received on Dec. 12.
Carroll Whaler, vice president of residential property management at H.G. Fenton Company, gave $500, received on Dec. 12.
Perry Dealy, of redevelopment services Dealy Development Inc., gave $250, received on Dec. 12.
Steve Scott, senior vice president of the Kilroy Realty Group, gave $500, received on Dec. 6, 2012.
Marco Sessa, senior vice president in land development/residential at Sudberry Properties gave $500, received on Dec. 11.
…
Matthew Strauss, real estate developer with M.C. Strauss Company, gave $500, received on Dec. 4.
Sarah Kruer, in the principal, investment & development department at Monarch Group, gave $500, received on Dec. 6.
Stath Karras, executive managing director with Cushman & Wakefield, gave $500 received on Nov. 30.
Sherman Harmer, an executive with Urban Housing Partners, gave $250, received on Dec. 11.
Dennis Cruzan, co-founding partner of Cruzan Monroe, gave $500, received on Dec. 3.
Kimberly Brewer, vice president of development with Westfield Corp., gave $500, received on Dec. 11.
Jerry Engen, real estate development with Westfield, gave $250, received March 12.
Pretty much SOP nationwide.
Politicians and developers all want their city to “grow”……the developers want little government interference, while at the same time getting a maximum amount of government subsidies, and support/buy candidates accordingly.
This question is a bit from left field.
I remember in 1989 when Abbie Hoffman died, all the newspapers and newscasts pointed out the great irony that the man who wrote Steal This Book died with a net worth of over five million. Quite the sum at the time.
I tried to find this out on google and nothing came up. It’s as if this fact has been erased. Does anyone remember this?
According to Wiki Hoffman wrote “Steal This Book” in order to inform people as to how to live for free. Many booksellers stopped carrying the book because too many of them were being stolen.
Wiki-up “Abbie Hoffman” for a very interesting read.
As for the five million dollars, this shouldn’t be too much of a surprise.
If a person writes a best seller then the checks will automatically come to him as the books are sold. Once this gets going then it will keep on going until the books stops selling. This flood of incoming money will pile up if the frugal writer of the book does not change his frugal ways.
The book wasn’t that big a seller.
He was more famous for his protests earlier. I’m not 100% sure but I think he did well in real estate near the end.
But that wasn’t the only book he wrote. And writing books wasn’t the only way in which he made money.
It all boils down to spending less than what you make. If he was a live-for-free type of guy then he really didn’t need all that much money, so most of the money he got ended up being stashed away instead of being spent.
“… spending less than what you make”
A concept that is lost on many people. A few years ago there was this article that an old lady died with a few millions to her name that she gave to an university or charity (I forget which).
This set all the wags talking “how could she” etc. The fact was that she lived frugally.
Abbie was a public pseudo-intellectual/clown prince whose fortunes came to him the same way they come to today’s Kardashi — via self-promoted contacts. (Except Abbie had wit, talent, and was widely admired by the counter-culture for speaking truth to power.)
I remember he was calling out Reagan and Oliver North and Bush a bit back in the Contra era and then he turns up dead.
I seem to recall something about that.
Patrick Stewart (Star Trek, the Next Generation, X-Men, etc.) is worth $60 million and is a socialist.
As long as Stewart is not dodging his taxes, then I have no problem with that.
Wealthy people, whatever their political persuasion, have avenues available to them to avoid taxes (as opposed to evade) that others not so prosperous, don’t.
I don’t think he’d care for having his wealth “re-distributed”.
Don’t get me wrong, I’m a fan of Stewart’s. I personally think he deserves every penny he has. But it just seems to me that a lot of wealthy folks with left-leaning politics are a tad confused about wealth re-distribution and whose wealth should be re-distributed.
Regarding taxes, wealth is treated one way, income is treated another.
Whatever income you can get by the tax man as it is earned gets a free ride from the tax man after it is stored away. And it is this storing away process that transfers income into wealth.
People piss and moan about how wealthy the one-percenters are then they direct their energies toward high earners. But high earners are not necessairly wealthy.
I said this before: Warren Buffett is not really a high earner but nevertheless he is enormously wealthy. Because he is not a high earner he does not pay the income taxes that high earners pay.
“People piss and moan about how wealthy the one-percenters are then they direct their energies toward high earners. But high earners are not necessarily wealthy.”
Exactly.
The “I got mines” coastal elites warm up to socialism because they think the government should help poor people. Believe me, I have met some of these folks, they would rather have my hard earned income taxed to help the poor, while they pay next to nothing in taxes and give very little to charity. Pathetic.
“The “I got mines” coastal elites warm up to socialism because they think the government should help poor people. Believe me, I have met some of these folks, they would rather have my hard earned income taxed to help the poor, while they pay next to nothing in taxes and give very little to charity. Pathetic.”
So what is Joe Biden like in person?
Funny you ask…I actually met him years ago in Phoenix/Scottsdale and I found him to be a nice person on that occasion.
Good catch on your part…he would fit right into that category.
Comment by jose canusi
2013-08-04 07:11:49
“I personally think he deserves every penny he has.”
Well I agree. I wonder what the rest of the film/production crew were paid (as a ratio) of the top actor/producer? What about a cut of the lifetime royalties? Surly they are all millionaires too.
I dunno. Seems to me that as long as a production crew is adequate, they are somewhat interchangeable. Actors — and writers — are not. What if ST:TNG had had a stellar crew but had cast a crappy actor for Captain? Would people have watched the show just on the quality of door swishes and set design?
“Would people have watched the show just on the quality of door swishes and set design?”
Good point. That could explain why they don’t show re-runs of Deep Space 9 much?
PS: Did you ever see LEX?
How the US became the USSR.
http://www.paulcraigroberts.org/2013/07/23/role-reversal-how-the-us-became-the-ussr-paul-craig-roberts/
“Snowden did United States citizens a great service. He told us that despite constitutional prohibition, Washington had implemented a universal spy system intercepting every communication of every American and much of the rest of the world. Special facilities are built in which to store these communications.
In other words, Snowden did what Americans are supposed to do–disclose government crimes against the Constitution and against citizens.”
I find it interesting that it is mainly those who put the universal surveillance program into place who are calling for Snowden’s head. Where is the outrage among the American people?
“Where is the outrage among the American people?”
Some are too beaten down by trying to make a living and raise their families and pay their mortgage. Many are stuck with their pusses in their I-phones, or I-pads or whatever. A large number are just too medicated to care. Many are distracted by issues such as race, immigration, abortion, etc.
But don’t you think that the i-phone and like, have succeeded beyond anyone’s expectations in the ruling class to distract the masses, especially the youth, attention from real issues such as a employment, living wage, rights?
Steve job said he Iphone makes you dumb….and its true
Because you are all using apps, and almost no one today knows how to use goggle SEARCH.
Its staggering how many kids have no clue how to use google for their homework……homework whats that….exactly!
Plus a lot dont even have a home computer or laptop….
What if you use the iPhone to read DailyKos and organize street protests?
The Terrifying Future of The United States
If this doesn’t wake you up, I don’t know what will.
http://www.youtube.com/watch?v=1rwmD4c_NxI
I think it’s hilarious that former CIA head Robert Lady was shipped back to the US from Panama and there has been nary a peep about extraditing him back to Italy to begin his jail sentence.
You have problem with Corporate Communist Capitalism©®™, comrade?
PRESIDENT JOHN F. KENNEDY
Document 100.1.3.2.0 31 of 39……..
“The high office of the President has been used to foment a plot to
destroy the Americans freedom and before I leave office I must inform the Citizen of his plight.” PRESIDENT JOHN F. KENNEDY(10 days before he was murdered)
On June 4, 1963, a virtually unknown Presidential decree, Executive Order 11110, was signed with the authority to basically strip the Federal Reserve Bank of its power to loan money to the United States Federal Government at interest. With the stroke of a pen, President Kennedy declared that the privately owned Federal Reserve Bank would soon be out of business. The Christian Common Law Institute has exhaustively researched this matter through the Federal Register and Library of Congress and can now safely conclude that this Executive Order has never been repealed, amended, or superceded by any subsequent Executive Order. In simple terms, it is still valid.
No man did more to expose the power of the FED than Louis T. McFadden, who was the Chairman of the House Banking Committee back in the 1930s. In describing the FED, he remarked in the Congressional Record, House pages 1295 and 1296 on June 10, 1932:
“Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal reserve banks. The Federal Reserve Board, a Government Board, has cheated the Government of the United States and he people of the United States out of enough money to pay the national debt. The depredations and the iniquities of the Federal Reserve Board and the Federal reserve banks acting together have cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government. It has done this through the mal-administration of that law by which the Federal Reserve Board, and through the corrupt practices of the moneyed vultures who control it”.
Some people think the Federal Reserve Banks are United States Government institutions. They are not Government institutions, departments, or agencies. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customers. Those 12 private credit monopolies were deceitfully placed upon this country by bankers who came here from Europe and who repaid us for our hospitality by undermining our American institutions.
The FED basically works like this: The government granted its power to create money to the FED banks. They create money, then loan it back to the government charging interest. The government levies income taxes to pay the interest on the debt. On this point, it’s interesting to note that the Federal Reserve Act and the sixteenth amendment, which gave congress the power to collect income taxes, were both passed in 1913. The incredible power of the FED over the economy is universally admitted. Some people,
especially in the banking and academic communities, even support it. On the other hand, there are those, such as President John Fitzgerald Kennedy, that have spoken out against it. His efforts were spoken about in Jim Marrs’ 1990 book Crossfire:
http://www.apfn.net/doc-100_bankruptcy31.htm - 29k
“The FED basically works like this: The government granted its power to create money to the FED banks. They create money, then loan it back to the government charging interest. The government levies income taxes to pay the interest on the debt.”
THIS!^^^^^^^
End the Fed. And end the freakin’ income tax. I know that gets some people going, but screw the income tax. Trash it.
End the Fed.M
i’m not against ending it, but you’ve got to be really careful how it’s done. you sure as hell don’t want to give that power to congress, or you’ll shortly have a zimbabwe situation. a competing currencies situation is probably the best way to go.
And end the freakin’ income tax.
yes, and end all other taxes and go with a single national sales tax. people think that a sale tax wouldn’t bring in enough money. well, it all depends on how much government spends. you can always spend more than you take in.
but a national sales tax, (if all other taxes were abolished), and if allowed to float between 9 and 7 percent, would bring in more money than is brought in now. and with the economic boom this would bring, it could be much, much more.
“a national sales tax, (if all other taxes were abolished), and if allowed to float between 9 and 7 percent, would bring in more money than is brought in now”
Wishful thinking.
If we the people end the Fed, where will we get money to run our country’s business? Create it our of thin air? Borrow it from China? Institute an informal national barter system until someone emerges as Big Dog to loan us money?
You don’t just “abolish” your system of banks without repercussion. How do you suggest addressing the interim between “abolishment” and reconstitution of a viable economic system?
Bonus question:
Wouldn’t abolishing the Fed be government incursion into private enterprise? After all, it’s the Rockefellers’ and Rothchilds’ hard earned money we’d be “ending”….
JFK vs. Federal Reserve
From: Catherick@aol.com
On June 4, 1963, a virtually unknown Presidential decree, Executive Order 11110, was signed by President John Fitzgerald Kennedy with the intention to strip the Federal Reserve Bank of its power to loan money to the United States Federal Government at interest. With the stroke of a pen, President Kennedy declared that the privately owned Federal Reserve Bank would soon be out of business. This matter has been exhaustively researched by the Christian Common Law Institute through the Federal Register and Library of Congress, and the Institute has conclude that President Kennedy’s Executive Order has never been repealed, amended, or superceded by any subsequent Executive Order. In simple terms, it is still valid.
When John Fitzgerald Kennedy, author of Profiles in Courage, signed this Order, it returned to the federal government, specifically to the Treasury Department, the Constitutional power to create and issue currency — money — without going through the privately owned Federal Reserve Bank. President Kennedy’s Executive Order 11110 gave the Treasury Department the explicit authority: “to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury” [the full text is displayed below]. This means that for every ounce of silver in the U.S. Treasury’s vault, the government could introduce new money into circulation based on the silver bullion physically held therein. As a result, more than $4 billion in United States Notes were brought into circulation in $2 and $5 denominations. Although $10 and $20 United States Notes were never circulated, they were being printed by the Treasury Department when Kennedy was assassinated.
Certainly it’s obvious that President Kennedy knew that the Federal Reserve Notes being circulated as “legal currency” were contrary to the Constitution of the United States, which calls for issuance of “United States Notes” as interest-free and debt-free currency backed by silver reserves in the U.S. Treasury. Comparing a “Federal Reserve Note” issued from the private central bank of the United States (i.e., the Federal Reserve Bank a/k/a Federal Reserve System), with a “United States Note” from the U.S. Treasury (as issued by President Kennedy’s Executive Order), the two almost look alike, except one says “Federal Reserve Note” on the top while the other says “United States Note”. In addition, the Federal Reserve Note has a green seal and serial number while the United States Note has a red seal and serial number. Following President Kennedy’s assassination on November 22, 1963, the United States Notes he had issued were immediately taken out of circulation, and Federal Reserve Notes continued to serve as the “legal currency” of the nation.
Kennedy knew that if the silver-backed United States Notes were widely circulated, they would eliminated the demand for Federal Reserve Notes. This is a simple matter of economics. USNs were backed by silver and FRNs were (still are) backed by nothing of intrinsic value. As a result of Executive Order 11110, the national debt would have prevented from reaching its current level (almost all of the $9 trillion in federal debt has been created since 1963). Executive Order 11110 also granted the U.S. Government the power to repay past debt without further borrowing from the privately owned Federal Reserve which charged both principle and interest and all new “money” it “created.” Finally, Executive Order 11110 gave the U.S.A. the ability to create its own money backed by silver, again giving money real value.
Perhaps President Kennedy’s assassination was a warning to future presidents not to interfere with the private Federal Reserve’s control over the creation of money. For, with true courage, JFK had boldly challenged the two most successful vehicles that have ever been used to drive up debt: 1) war (i.e., the Vietnam war); and, 2) the creation of money by a privately owned central bank. His efforts to have all U.S. troops out of Vietnam by 1965 combined with Executive Order 11110 would have destroyed the profits and control of the private Federal Reserve Bank.
http://foundationfortruthinlaw.org/jfk-vs-fed.html - 25k -
This scenario is about as phony as it gets, as in total fabrication.
The Speech that killed John F. Kennedy. - YouTube
http://www.youtube.com/watch?v=uQfguLUCkuA - 118k -
“During a speech before the American Newspaper Publishers Association in New York City, April 27, 1961, JFK warned the American people of secret societies and implored the media to be vigilant against them. Illuminati Conspiracy theorists claim this speech set in motion plans to eliminate JFK…”
A colleague at work is an Illuminati conspiracy theorist. She assumes that pretty much anything which takes place in the upper echelons of power is due to some decision made by the Illuminati behind closed doors.
You can’t chalk every thing up to chance (e.g. the US invasion of Iraq in 2003).
Why was John J. McCloy, former head of the world bank on the Warren Commission?
West’s Encyclopedia of American Law | 2005 | COPYRIGHT
WARREN COMMISSION
The assassination of President john f. kennedy in Dallas, Texas, on November 22, 1963, was a shocking event that immediately raised questions about the circumstances surrounding the death of the president. Those questions increased when the alleged assassin, Lee Harvey Oswald, was murdered while in the custody of Dallas police on November 25 by jack ruby, a Dallas nightclub owner.
President lyndon b. johnson moved quickly to reassure the nation that a thorough inquiry would take place by creating a commission of distinguished public servants to investigate the evidence. On November 29, 1963,
Johnson appointed earl warren, chief justice of the U.S. Supreme Court, to head the commission, which became known as the Warren Commission. Its 1964 report, which sought to put to rest many issues, proved controversial, provoking charges of a whitewash. The facts surrounding the Kennedy assassination remain the subject of debate.
Chief Justice Warren, fearing that his service disrupted the traditional separation of powers, reluctantly agreed to serve as director of the commission. The other members of the commission were Senators Richard B. Russell of Georgia and john sherman Cooper of Kentucky; two members of the House of Representatives, Hale Boggs of Louisiana and gerald r. ford of Michigan; Allen W. Dulles, former head of the central intelligence agency; John J. McCloy, former head of the world bank; and James Lee Rankin, former U.S. solicitor general, who was appointed general counsel for the commission.
http://www.encyclopedia.com/topic/Warren_Commission.aspx - 91k -
There is no need for an Lunatic bogey man.
Plenty of conspiracies and collusion are done every day by the PTB.
Now that’s FUNNY!
!
“The very word “secrecy” is repugnant in a free and open society; and we are as a people inherently and historically opposed to secret societies, to secret oaths and secret proceedings. We decided long ago that the dangers of excessive and unwarranted concealment of pertinent facts far outweighed the dangers which are cited to justify it. Even today, there is little value in opposing the threat of a closed society by imitating its arbitrary restrictions. Even today, there is little value in insuring the survival of our nation if our traditions do not survive with it. And there is very grave danger that an announced need for increased security will be seized upon those anxious to expand its meaning to the very limits of official censorship and concealment. That I do not intend to permit to the extent that it is in my control. And no official of my Administration, whether his rank is high or low, civilian or military, should interpret my words here tonight as an excuse to censor the news, to stifle dissent, to cover up our mistakes or to withhold from the press and the public the facts they deserve to know.”
“For we are opposed around the world by a monolithic and ruthless conspiracy that relies on covert means for expanding its sphere of influence–on infiltration instead of invasion, on subversion instead of elections, on intimidation instead of free choice, on guerrillas by night instead of armies by day. It is a system which has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific and political operations.
Its preparations are concealed, not published. Its mistakes are buried not headlined. Its dissenters are silenced, not praised. No expenditure is questioned, no rumor is printed, no secret is revealed.”
“No President should fear public scrutiny of his program. For from that scrutiny comes understanding; and from that understanding comes support or opposition. And both are necessary. I am not asking your newspapers to support the Administration, but I am asking your help in the tremendous task of informing and alerting the American people. For I have complete confidence in the response and dedication of our citizens whenever they are fully informed.”
http://www.modernghana.com/news/347874/1/the-speech-that-killed-john-f-kennedy.html - 47k
I don’t know how many components you need for a successful conspiracy, but I would include these two:
1. People who can keep a secret.
2. A result which people want to accept.
I think the Lance Armstrong case reveals some other components that only “present” out of dynamics produced when you have #1 and #2.
I would add your front line people must be the dumbest people you can find. I noticed that i guess back in 06, in a local wells fargo mortgage office, and that’s what got me thinking somethings not right and I wound up here…
Millions of young Americans are living at home, according to a Pew Research Center analysis of U.S. Census Bureau data. The number of “millennials” — adults aged 18 to 31– living at home rose to 36% last year. That represented the highest percentage in the last four decades, and a significant increase from 32% just five years earlier. In 2012, 56% of adults aged 18 to 24 lived in their parental home, Pew found, as did 16% of adults aged 25 to 31. However, millennial males (40%) were significantly more likely than millennial females (32%) to live with mom and dad.
the fact that around 22.6 million young adults are still living at home also means there are fewer renters and potential buyers of first-time homes in the property market. Only 450,000 new households are being created annually versus 1.1 million before the recession, according to real-estate marketplace Trulia; 18- to 34-year-olds make up half of that demand.
marketwatch.com/story/more-men-than-women-live-with-their-parents-2013-08-02?siteid=yhoof2
“The number of “millennials” — adults aged 18 to 31– living at home rose to 36% last year.”
Interesting coincidence: 36% (a number exceeding 1 out of every 3) exactly matches the current percentage of working aged Americans who are out of the workforce — i.e., who could work or be looking for work, but aren’t.
4 Reasons Why Millions Of Americans Are Leaving The Workforce
by Lisa Chow
August 02, 2013 3:17 AM
4 min 16 sec
Participation Rate
Source: Bureau of Labor Statistics
Credit: Alyson Hurt/NPR
The unemployment rate only includes people who don’t have jobs and are looking for work. A much larger swath of people — about 36 percent of U.S. adults — don’t have jobs and aren’t looking for work at all. That figure is higher than it’s been in decades (and, conversely, the share of adults in the labor force — shown in the graph above — is lower than it’s been in decades).
…
The fact that 36% of working aged Americans are out of the workforce certainly makes the recent Housing Bubble reflation all the more remarkable. How can housing prices be rocketing up when so many American households are barely getting by on zero-to-one income?
the boomerang buyers are back to take another shot at some free equity in the housing casino.
You cannot lose if you put nothing down. Get in the game. If your not in the game you have no shot at free equity.
A lot of that 36% are guys like my buddies in Wichita who just took buyouts/early retirement……over 50, mostly still married (so they still have insurance), houses in Flyover mostly paid for.
As I understand it, they were offered their (not so hot) pensions, plus a $100K bonus, plus one year’s salary to go away. But you had to be over 50 to be offered this sweetheart deal.
Under 50? You got a layoff notice the following week. Congratulations…..all of those aviation related skills you’ve spent 20 years learning don’t mean squat. Your options are a taking a Lucky Duck job, or going back to school, and figuring out a new career path that will pay the bills, and pay the school loans.
Is this enough to retire on at age 50-55? I doubt it. The smart ones will try to do something part time, starting right now. Good luck with that….. No work locally, so they will have to relocate, selling their paid-for house, and trying to find a job with decent pay/benefits for the spouse.
The race to the bottom has started in the aviation business. Component fabrication is still being shipped off to Monterrey. Everyone is falling behind into the Boeing plan, which is to retain systems/component integration, certification, and final assembly in the US, and ship all of the component fabrication off to Third World places like Mexico, China, and South Carolina.
So there is a plan in place and it’s working. Capital can move anywhere in the world in a mater of seconds but human labor has biological and cultural roots to specific geographic locations (as so know as a ‘home’). Maybe if we could some how control how capital moves from one market to another the workers of the world would be better off? Who would be the first politician to propose a law restricting foreign ownership to a max of say 30% in any American asset AND restrict Americans corporations from owning more than 30% of a foreign asset? Would that kill the ‘Free Market’?
Just killing the tax breaks to offshore would help.
http://www.reuters.com/article/idUSTRE68R40I20100928
Oh wait, we tried that and the American worker voted to give more power just 2 months later to the very people who killed that and screwed them.
You can’t fix, legislate or make polices to fix that kind of stupid.
Darn stay at home house wives.
Girl across the street just graduated from college. Has a job, and is living at home.
Why?
The rent where she wants to live is too high. It’s that simple.
I’m sure there are plenty of jobless young kids where $1 per month is too high for rent, but that’s not the universal story.
I’m running into that myself.
I’d like to live within 10 minutes of work……here is the pricing structure:
Within 10 minutes = 1.5 x “X” (90% on-street parking)
15-45 minutes/20-30 miles out out = 1.25 x “X”
1 hour/40 miles out = 1.0 x “X”
“X” = 2 bedroom apartment in reasonably secure neighborhood = $750-800/month.
I watched my dad commute about an hour each way for about 40 years. From that, I learned that I’d be willing to pay a bit more to reduce that commute time (especially with kids). I often wonder whether the stress my dad lived with would have been less in the age of the internet (work from home, commute if off-times, more satellite offices, etc.).
HEROES AND VILLIANS IN THE WAR AGAINST A NEW WORLD ORDER DICTATORSHIP
Introduction:
Below you will see a question, read it and it’s consequences, the reasoning behind the plot, the goals of the plotters and accomplices and then scroll down to view the few heroes and the scores of collaborators and conspirators.
Question:
Why would a sovereign people who are fully capable of issuing their own money and credit surrender that authority to a supranational oligarchy that issues fiat debt?
Consequences for doing so.
Abolishing national currencies essentially dissolves national sovereignty.
Reasoning for destroying national sovereignty.
While inadequate, purchased and silenced media would have us believe that rampant and random greed provoked a
spontaneous “global financial crisis,” the historical record indicates deliberate and carefully planned destruction of national sovereignty, worldwide. The plans for consolidating private control of global wealth have been in motion for over a century, accelerating exponentially with the frenzy of neoliberal deregulation in the last 20 years, that enabled financial fraud to metastasize globally. Carroll Quigley, a Georgetown University historian and Bill Clinton’s mentor, was privy to documents and meetings held by the international powers of financial capitalism. He was not speculating on their motives but rather reporting as a trusted insider, an eye witness who described their intent.
Goals:
To ultimately be able to purchase each and every property, plot of land for pennies on the dollar or to secure that nation’s debt by surrenderingn certain properties and land. Taking complete control of the country, abolish their rights system and impose a dictatorship over the subjects, who would be expected to respect and obey their new masters.
Conspirators and Collaborators:
The Bilderberg Group, the Central Bank Cartel, the President, Vice-President, the House and the Senate. The media also would take a large portion of blame for purposely leaving the unwitting citizens out of the information loop of the impending doom by distracting them to stories and articles that painted a great landscape but didn’t show the weeds growing up underneath the foundation of the garden of prosperity and happiness.
http://wallstreetandcongressgreed.com/ - 65k -
“The Bilderberg Group, the Central Bank Cartel, the President, Vice-President, the House and the Senate.”
If all those supposed co-conspirators have a role in controlling everybody else, then this New World Order the writer describes is not a dictatorship.
And therein lies the problem and perhaps the only thing that saves us. These folks have different agendas and in many ways don’t trust each other and have the long knives out for each other. If they could agree, we’d really be in the soup more than we are now.
Hillary Clinton admits the CFR gives the Orders - YouTube
http://www.youtube.com/watch?v=Ba9wxl1Dmas - 146k - Cached - Similar pages
Jul 22, 2009
Ron Paul explains the Council on Foreign Relations and the New …
http://www.youtube.com/watch?v=Q4L7GKSfsDQ - 136k - Cached - Similar pages
Jan 22, 2012
To have soo much power, yet not able to get a Youtube video taken down. Must be very frustrating.
“To have soo much power, yet not able to get a Youtube video taken down. Must be very frustrating.”
It must be.
PBS’s Charlie Rose Runs Away From Bilderberg Questions - YouTube
http://www.youtube.com/watch?v=jP6l39I47QA - 146k - Cached - Similar pages
May 31, 2012 …
>To have soo much power, yet not able to get a Youtube video taken down. Must be very frustrating.
And THIS is the true power of the Internet.
>And therein lies the problem and perhaps the only thing that saves us. These folks have different agendas and in many ways don’t trust each other and have the long knives out for each other.
No. It means we get caught in the crossfire and become collateral damage.
“If all those supposed co-conspirators have a role in controlling everybody else, then this New World Order the writer describes is not a dictatorship.”
Circles in circles.
In the Quigley presentation by Edward Griffin, he described how many of the members of the CFR may see it as the ultimate resume’ padding organization and really not know or care about its true purpose.
This is quite understandable. My best friend worked for the IMF and when I explained to her how a bank could destroy a country the same way they can destroy a community, she got very defensive; she did not want to know.
>To have soo much power, yet not able to get a Youtube video taken down. Must be very frustrating.
The Medici weren’t a dictatorship either, yet they controlled Europe for almost 300 years.
https://en.wikipedia.org/wiki/House_of_Medici
Have U.S. credit markets fully recovered by now from the so-called Credit Crunch of 2007/2008?
Note the dateline of this article is August 5, 2008, a few months before the failures of Fannie Mae, Freddie Mac and Lehman Brothers, among other too-big-to-fail financial entities, nearly brought down the entire global financial system.
Timeline: The credit crunch of 2007/2008
LONDON | Tue Aug 5, 2008 7:46am EDT
(Reuters) - Credit market turmoil has hammered the global banking system, forced asset writedowns of more than a third of a trillion dollars to date, squeezed lending everywhere and initiated a sharp slowing of the world economy.
Reuters News is producing a package of stories analyzing the impact of the credit crunch on consumers, policymakers and investors around the world.
Below is a timeline of events.
* Q4, 2006 - U.S. housing market slows after two years of rising official interest rates. Delinquency rates on U.S. subprime mortgages rise, leading to wave of bankruptcies at subprime lenders. Interest rate premia on Collateralized Debt Obligations, repackaged bonds and loans which included subprime mortgage debt, jump sharply in December 2006 and January 2007.
* Feb 8, 2007 - HSBC says more funds will have to be set aside to cover bad debts in U.S. subprime lending portfolios. California’s New Century Financial Corp — the third largest U.S. subprime lender — said it expected Q4 2006 loss. Spreads on non-investment grade tranches of home equity CDOs widen more than 200 basis points in two days that follow.
* June 6 - European Central Bank raises key interest rates by a quarter point to 4.0 percent.
* June 20 - Two hedge funds managed by U.S. investment bank Bear Stearns announce losses after making bad bets on securities backed by subprime loans. They sell $4 billion of assets to cover investor redemptions and expected margin calls. Merrill Lynch sells off assets seized from the funds.
* July 5 - Bank of England raises key interest rates by a quarter percentage point to 5.75 percent.
* July 10 - Credit ratings firm Standard & Poor’s said it may cut ratings on some $12 billion of subprime debt. U.S. firms Home Depot (HD.N) and D.R. Horton (DHI.N) issue warnings about housing market. Credit spreads soar by full percentage point in 6 weeks from record low of 188 basis points hit on June 1.
* July 17 - Bear Stearns says two hedge funds with subprime exposure have very little value; credit spreads soar. Two days later, S&P slashes ratings on some top-rated mortgage bonds by eight notches.
* July 30 - German bank IKB IKB.DE cuts earnings targets for 2007/08, citing losses linked to U.S. subprime. Credit spreads balloon to record highs above 500 basis points.
* Aug 7 - U.S. Federal Reserve leaves interest rates at 5.25 percent, saying economic growth remains moderate despite tighter credit conditions and that inflation remains its main concern.
…
nothing has changed besides printing more cash.
The cash printing has turned losers into winners and replaced cautious financial prudence with complacent financial profligacy.
Otherwise I agree — nothing has changed much.
the cash printing has basically sent a statement:
When your risky investments fail well be here to pick wall street up off the floor and pass those losses onto taxpayers. Its a matter of saving the whole financial system.
Part of the plan is for the bull phase of the cycle to last long enough for collective memory to fail about the plan to bail out the market again at the time of the next crash.
I’m not sure the collective memory has had sufficient time five years out to have already forgotten the post-2008 financial collapse bailouts?
ft dot com
On Wall Street
August 2, 2013 4:05 pm
Warning lights are flashing in America’s credit markets
By Stephen Foley
There is much for financial stability hawks to worry about
Wall Street has played a one-note tune for three months now, focused monomaniacally on the question of when the Federal Reserve will begin to taper its bond purchases. Inevitably, Friday’s disappointing US payrolls numbers were seen giving the Decemberists a boost over the September Songstrels.
But while the market has turned on this question since May, it is actually six months since the first hint that the Fed was shifting its thinking on quantitative easing, and that there might be more to the taper question than monthly swings in the economic data.
Fed governor Jeremy Stein’s February 7 speech on “Overheating in Credit Markets” signalled that officials were thinking seriously about the potential financial ill-effects of QE, in a theme that was taken up by chairman Ben Bernanke three months later. It looked an important speech then. It looks seminal now.
In it, Prof Stein highlighted the dangers to financial stability as investors reach to earn a little more yield in the ultra-low interest rate environment engineered by the Fed. He ran through a list of indicators where one may spot high-risk practices building up. It is worth repeating the exercise.
The first thing to say is that the months of May and June, when investors got used to the idea that Fed tapering will begin this year, took some of air out of the junk bond and leveraged loan markets – but not nearly as much as one may imagine.
One of Prof Stein’s insights was that policy makers must dig beyond headline numbers such as credit spreads, if they want to see overheating before it is too late. Investors reach for yield by taking on risk in ways that are deliberately harder to measure, by accepting fewer investor protections, for example.
All four of his non-traditional indicators are flashing warning lights, data from Lipper and S&P Capital IQ show. This year’s issuance of payment-in-kind notes, which allow borrowers to put off cash interest payments, is close to passing the total for the whole of 2012, having had the biggest month this year in July.
Issuance of covenant-lite loans hit an all-time record in February but even through recent turbulence it has remained elevated at monthly levels that were typical in the first half of 2007.
The use of borrowing simply to pay private equity shareholder dividends – “divi recaps” – doubled in the second quarter from the first. July was slow, but there are $8bn of deals slated for August, which will be at least the second-highest month this year.
And finally, the leverage in large buyout deals in July was 5.9 times, the highest since 2007. There is still a wall of money chasing the higher yields from junk bonds and leveraged loans. Leveraged loan funds just recorded their 59th successive week of inflows.
…
The vast expansion of ETFs and mortgage real estate investment trusts has changed financial markets in ways that are yet to be tested. Mortgage Reits in particular, which borrow in short-term markets to fund investments in government-backed mortgage securities, have had a taster of distress. Many have fallen by a quarter in market capitalisation as those securities declined in value since May.
…
Another risk, though, seems only likely to build. New derivatives trading rules and bank capital requirements are increasing demand for pristine collateral (Treasuries and the like) for short-term lending, but these rules are only now being rolled out by regulators.
There is much, in other words, for financial stability hawks to worry about, even if the economic doves use the latest payrolls data to argue for a delay to tapering. The evidence from credit markets, and from high-yield and leveraged loan sectors in particular, is that risk-taking may be more widespread even than it was when Prof Stein raised his early warning in February.
…
Speech
Governor Jeremy C. Stein
At the “Restoring Household Financial Stability after the Great Recession: Why Household Balance Sheets Matter” research symposium sponsored by the Federal Reserve Bank of St. Louis, St. Louis, Missouri
February 7, 2013
Overheating in Credit Markets: Origins, Measurement, and Policy Responses
Thank you very much. It’s a pleasure to be here. The question I’d like to address today is this: What factors lead to overheating episodes in credit markets? In other words, why do we periodically observe credit booms, times during which lending standards appear to become lax and which tend to be followed by low returns on credit instruments relative to other asset classes? We have seen how such episodes can sometimes have adverse effects on the financial system and the broader economy, and the hope would be that a better understanding of the causes can be helpful both in identifying emerging problems on a timely basis and in thinking about appropriate policy responses.
…
Not having read all the past Fed Governor’s speeches, I have to wonder whether these considerations are fresh or recycled? At any rate, it is interesting that the possible destructive impacts of low interest rates on risk taking activities are in the Fed’s gun sights:
If a too-big-to-fail financial entity knows it will get bailed out if its “yield reaching” investments produce massive losses, then what would stop it from reaching to the sky?
your chance to get free money for not working is to take some of your cash and buys stocks or homes. Its called the wealth effect.
If you dont have any money open a margin account or get a loan.
“If you dont have any money open a margin account or get a loan.”
Massively widespread stock purchases on margin turned out very badly in 1929, 2000 and 2008; maybe it’s different this time?
One thing seems quite clear: Very high current levels of margin debt to buy stocks make it imperative for the Plunge Protection Team to remain ever-vigilant against any sizable market downdrafts.
DEJA VU: People Are Using Borrowed Money To Buy Stock Like It’s 2007 Or 1999
Cullen Roche, Pragmatic Capitalism
Jul. 29, 2013, 4:29 AM
Deutsche Bank has a monster note out on margin debt that has been making the rounds. The conclusion of the note is rather simple – today’s euphoric borrowing on margin to buy stocks is reminiscent of past bubbly equity market periods (see here for more). The note reviews commentary from the 1999 & 2007 periods and compares it to what’s being said today. They found some eerie similarities:
We prepared a collection of press articles which were published around the key events during the past financial crises as displayed in Figure 2 on page 2 above. Our key finding is straight forward. Irrespective of the publishing date, the articles read alike throughout the two major crisis periods, i.e. the “new technologies market equity bubble” (1999-00) and the “Great/Global Financial Crisis” (2007-08) (see Figure 6 on page 5 and Figure 7 on page 6). Most interestingly, litrally the same content can be found in todays’ press as displayed in Figure 8 on page 7). Universal phrases include:
Why is margin debt dangerous?
…
once the market takes a nosedive all those folks will be forced to meet margin calls causing further selling. the vultures will of course sit on the sidelines and wait for the panic selling to occur.
Adding to this is the fact that short covering will be limited because the shorts have basically left the building.
“…the vultures will of course sit on the sidelines and wait for the panic selling to occur.”
Here’s to looking forward to future vulturehood!
Vultures don’t kill. They wait until after the death of their targets.
Vultures do the dirty job of removing the rotting, stinking dead carrion.
“Vultures don’t kill.”
These do.
http://lib.colostate.edu/research/agnic/vultures-livestock.html
“The vultures, when close enough, then attack by grabbing a calf’s eyeballs and pulling them out, blinding the animal. Alternatively, they may grab calves by the nose or the tongue. Once attacked, they go into shock and are easy pickings for the vultures.”
Impatient little birdies!
The black vultures are the wrong model for short sellers, whose passive bets against the stock market only pay off at the point when active investors stop buying for long enough for sellers to have to accept a much-lower-than-expected sale price, possibly exacerbated by margin calls.
Simple answer? No.
More complete answer, for some types of lending, it has completely recovered. For other types, nowhere close.
Any President that Would Dare Oppose The Federal Reserve Gets Assassinated: History Lesson & JP Morgan Buyout of Bear Stearns
Submitted by Sygnus Centauri on Wed, 07/02/2008 - 17:32
in Daily Paul Liberty Forum
Article Source
Somewhere in the trillionaires room of Heaven three old codgers are sitting around a table smoking cigars and chuckling over the J. P Morgan Chase & Company buyout of Bear Stearns for a paltry $2.00 a share. Not so much because the price had been over $130 a share a few weeks earlier but because the Federal Reserve Board put up $30 billion of the government’s money to guarantee the sale.
Yes, Mayer Amschel Rothschild, J. P. Morgan and John D. Rockefeller, patriarchs of three of the most powerful family fortunes in history have waited nearly two centuries to see their dreams fulfilled. Perhaps such patience is why their families have remained successful by steadfastly maintaining the rules of the game as set down by their founders.
It was 248 years ago, in 1760 that Mayer Amschel Rothschild created the House of Rothschild that was to pave the way for international banking and control of the world’s resources on a scale unparalleled and somewhat mysterious to this date. He disbursed his five sons to set up banking operations throughout Europe and the various European empires.
“Give me control of a nation’s money
and I care not who makes the laws.”
Mayer Amschel Rothschild
Rothschild agents in 1791 formed the First Bank of the United States but intense opposition to foreign ownership by President Jefferson and others helped kill it by 1811. A Second Bank of the United States was formed in 1816 once again by Rothschild agents and this time they secured a 20-year charter. However, President Andrew Jackson was also opposed to foreign ownership and withdrew the federal deposits in 1832 as part of his plan to kill the bank charter in 1836.
An attempt to assassinate Jackson in 1834 left him wounded but more determined than ever to stop the central bank. Thirty years later President Lincoln refused to pay international bankers extremely high interest rates during the Civil War and ordered the printing of government bonds. With the help of Russian Czar Alexander II who also blocked a similar national bank from being set up in Russia by the international bankers they were able to survive the economic squeeze.
Lincoln said, “The money powers prey upon the nation in times of peace and conspire against it in times of adversity. The banking powers are more despotic than a monarchy, more insolent than autocracy, more selfish than bureaucracy. They denounce as public enemies all who question their methods or throw light upon their crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe. Corporations have been enthroned, and an era of corruption in high places will follow. The money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few, and the Republic is destroyed.”
Both Lincoln and Alexander II were assassinated. In 1881 James Garfield became president and he was dedicated to restoring the right of the federal government to issue money like Lincoln did in the Civil War and he was also assassinated.
Finally along came 1913 and the US was again suffering from a weak economy and there was a threat of another costly war, a world war this time, and business tycoons J.P. Morgan, John D. Rockefeller and E.H. Harriman were part of a group that got Woodrow Wilson to sign into law the Federal Reserve Act creating a network of 12 privately owned banks as part of a new Federal Reserve network.
One of the largest stockholders in the new Federal Reserve was the House of Rothschild through their direct and indirect holdings. A few years later it was disclosed that the Rothschilds also owned about 20% of J. P. Morgan. In time Morgan would merge with the Chase Manhattan Bank of the Rockefellers.
Years later John F. Kennedy opposed a private national bank and was assassinated in 1963 and Ronald Reagan opposed a private national bank and in 1981 an attempt was made to assassinate him. Coincidence or not the opposition to a privately owned national bank was a common characteristic to all these successful assassinations and assassination attempts.
Which brings us full circle to the present bailout of Bear Stearns by J.P. Morgan Chase & Company and we find the Rothschild, Morgan and Rockefeller families are all conveniently part of the same group benefiting from the bailout and the $30 billion guarantee by the Federal Reserve. This is the third time the J. P. Morgan Company has come to the rescue of the American banking system and economy.
http://www.dailypaul.com/53998/any-president-that-would-dare-oppose-the-federal-reserve-gets-assassinated-history-lesson-jp-morgan-buyout-of-bear-stearns - 114k
Jose,
if the federal government ever gets the power to print money, you’ll have exactly what zimbabwe has.
the only viable answer to getting rid of the FED, is to have competing currencies like we had before the FED was created. if we had competing currencies, one would rise as the favorite and it would begin to be universally used. and if they got out of line in some way, people would begin to abandon that currency and move to a safer one.
sorry, the above was meant to be addressed to ‘phony scandals’..
Bear Stearns was worth close to zilch when JPM purchased it.
Essentially, they got $30 billion to clean up the mess.
BS turned a $130/share company into a $zilch/share company all by themselves
See also the Medici, 14th - 17th century banking dynasty.
Are there any recent new developments in the Fed’s move to end its quantitative easing policy?
The Yomiuri Shimbun
Fed must cleverly pursue exit from quantitative easing policy
August 3, 2013
The U.S. Federal Reserve Board has been assessing the appropriate timing for an exit strategy to scale back the current phase three of its quantitative monetary easing policy, known as QE3.
What should the U.S. central bank do to begin tapering off the QE policies as soon as September without wreaking havoc on the market? The Fed is certain to tread a thorny path going forward in steering its monetary policy.
A two-day meeting of the Fed’s policy-making Federal Open Market Committee was held Tuesday and Wednesday. During the meeting, a decision was made to continue QE3, which entails purchasing Treasury bonds and mortgage-backed securities at a pace of $85 billion (about 8.3 trillion yen) a month and a near-zero interbank interest rate policy.
Chairman Ben Bernanke announced in June the central bank’s plan for an exit strategy to start slowing down the pace of bond purchases “later this year,” contingent upon ongoing positive economic data. Specifically, he said bond buying could wrap up “by mid-2014.”
Market players were closely watching the latest policy meeting to see whether the Fed would solidify further steps for scaling back the bond-buying program. The FOMC statement that was released on Wednesday, however, did not mention anything of the sort, instead saying the committee “is prepared to increase or reduce the pace” of its purchases to maintain appropriate policy accommodation. As for the commercial sector, the Fed slightly downgraded its economic outlook for the United States.
In response to heightened speculation that the central bank may start backing off of QE3 in September, Bernanke said “there is no preset course” for ending the Fed’s bond buying. He added, “Highly accommodative monetary policy for the foreseeable future is what’s needed” for the U.S. economy.
Caution promotes stability
Based on the latest FMOC statement and a series of remarks by the Fed chairman, it seems the U.S. central bank wants to prevent volatile market reactions yet maintain the flexibility to gradually curtail its ultraeasy monetary policy.
…
Challenge of turning off America’s ‘loose money’ tap
Just at the point when the Bank of England is thinking about introducing so-called “forward guidance” – in effect, a promise to keep the monetary taps open until there is a measurable and sustainable improvement in economic growth – the US Federal Reserve is considering doing exactly the opposite.
A share trader takes a phone call as he is seen behind a false one dollar bill at the German stock exchange in Frankfurt
QE has become an addictive painkiller: nice to be on but, as with so many other painkillers, accompanied by unwanted side-effects
Photo: Reuters
By Stephen King
6:00PM BST 03 Aug 2013
Each month this year, via its quantitative easing programme, the Federal Reserve has been buying up $85bn (£55.8bn) of financial assets – a mix of US Treasuries and mortgage-backed securities.
The idea has been to lower long-term interest rates to encourage a broad-based recovery in economic activity and, more specifically, a pick-up in the US housing market.
Recently, however, the mood music at the Federal Reserve has changed.
Suddenly, all the talk has been about the “tapering” of asset purchases, with the implication that, over the next year or so, such purchases might stop altogether and be followed – heaven forbid – by an increase in official interest rates.
For both financial investors and the Bank of England, tapering offers new challenges. Markets have become increasingly volatile of late, while the new Governor, Mark Carney, and his colleagues worry about the impact of US tapering on domestic UK monetary conditions.
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Fed’s Bullard Urges Wait for 2nd-Half Data Before Tapering
By Steve Matthews & Tom Moroney - Aug 2, 2013 12:38 PM PT
Federal Reserve Bank of St. Louis President James Bullard, who backed this week’s Fed decision to continue bond buying, said the Fed should wait for evidence the labor market and economy are strengthening before tapering purchases.
“The committee needs to see more data on macroeconomic performance for the second half of 2013 before making a judgment on this matter,” Bullard said today in a speech in Boston. While improvement is forecast, “it is important to wait to see if better macroeconomic outcomes materialize in the months and quarters ahead.”
…
I’m extremely curious on how U.S. stock market investors divide between those who are utterly convinced it is only a matter of time until the Fed ends QE3, and those who view the current discussion of ending QE3 as a protracted bluff intended to give the Fed future latitude to goose the stock market when they further extend the timeline until QE3 will end?
But also, how many NON-stock market investors are staying out completely because of fear of what happens when QE is reduced?
I personally think that they will slowly reduce QE…so far, whenever their statements have sent shockwaves through the market, they quickly retracted/changed the offending language.
They are trying to create spending from the wealth effect as well as providing cheap capital (forcing people into risk assets).
“But also, how many NON-stock market investors are staying out completely because of fear of what happens when QE is reduced?”
There may be a lot, but this group is most likely composed largely of small fry investors. The big boyz are the ones using massive leverage to goose their returns.
Whoever they are, it’s a big number. I saw a graph showing cumulative inflows into the stock and bond markets. Flows into the bond markets are about $1T above the trendline, flows into equity markets are similar number below.
That was current data as of about 4-6 months ago…I often wonder what it looks like today.
http://www.cnbc.com/id/100938142
Looks like this is a small bit of the reversal of the trend that I noted in my earlier post.
How they divide?
Who has the insider info and who doesn’t.
buy as many treasuries as possible to keep mortgage rates < 5%?
Do bond market losses to the Fed on paper have any real economic effect, aside from hammering the portfolios of folks who invest with Pimco? For instance, why did the writer of this article feel the need to qualify the headline with “on Paper”?
5:38 pm Aug 1, 2013
Markets
Bond Swoon Hammers the Fed, on Paper
By Min Zeng
The second-quarter swoon in the U.S. bond market wiped out most of the paper gains on the Federal Reserve’s $3.3 trillion bond portfolio, according to one estimate, in a reversal that has little practical impact for the central bank but could renew criticism by lawmakers who oppose the Fed’s easy-money policies.
Scott Minerd, chief investment officer at Guggenheim Partners LLC, and Pryia Misra, head of U.S. rates strategy research at Bank of America Merrill Lynch, estimated the spring bond selloff reduced the value of the Fed’s securities holdings by $192 billion. That essentially eliminates the $200 billion or so of paper gains the central bank has accumulated over five years of exceptional bond-purchase programs and generally rising asset prices, Guggenheim projects.
Bond prices tumbled in May and June, following comments from Fed Chairman Ben Bernanke suggesting the central bank’s monthly bond purchases could soon be curtailed. The selloff sent the 10-year Treasury yield above 2.70% from a low of 1.61% in May.
A Fed representative declined to comment Thursday.
…
all the more reason to keep rates low via QE.
Along with destroying gain on the bond portfolio real estate loans are directly related to the yield on the the 10 year.
This party is not going to end by the FED’s doing.
Aug. 4, 2013, 12:01 p.m. EDT
Key Fed speeches on tap
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — When Federal Reserve officials speak, markets listen. And there will be a lot of listening this week.
“The most important events for the market this week are the Fed speakers,” said Bricklin Dwyer, an economist at BNP Paribas.
“We’ll be looking to see how their forecasts have changed and the impact that has on tapering,” Dwyer said.
The Fed is facing an important decision, when and how to slow down the pace of its $85 billion-a-month asset purchase program, also known as quantitative easing.
Fed Chairman Ben Bernanke said the central bank would like to begin to pull back later this year, but has stressed that the decision was not on a preset course and was based on their upbeat forecast.
The problem is that, since Bernanke presented the roadmap in June, the data has been mixed, and not necessarily pointing towards acceleration or slowdown. Growth over the last three quarters has averaged just less than 1%.
Is the economy hot or cold? The truth may be somewhere in between.
“We’ve had modest growth and reasonable people can disagree” about the road ahead, said Josh Shapiro, chief U.S. economist at MFR Inc.
In their last forecasts in June, the Fed was remarkably upbeat, saying that the downside risks to growth had diminished and that growth for 2013 would be in the range of 2.3%-2.6% before accelerating about 3% in 2014
July’s employment report threw cold water on hopes for a dramatic reacceleration in growth. The economy added 162,000 jobs in July, below market expectations. The unemployment rate slipped to 7.4%.
On Friday, St. Louis Fed President James Bullard said the central bank should not taper on the expectation that things will improve but wait for actual evidence.
“Most of these questions [about growth, inflation and the labor market] will be better addressed once we see additional economic data from the second half of 2013,” he said.
On Monday, Dallas Fed President Richard Fisher will step up to the microphone.
On Tuesday, Charles Evans, the president of the Chicago Fed, will sit down with reporters. On Wednesday, Philadelphia Fed President Charles Plosser and Cleveland Fed President Sandra Pianalto will take their turns in the spotlight.
Dwyer said each of the central bank officials brings something unique to the table.
Fisher “is spicy and too the point,” Dwyer said. “That can be helpful,” he added.
Evans, a strong supporter of the Fed’s asset purchase program, will be interesting “to see how dovish are the doves,” he said.
And Cleveland Fed’s Pianalto can give “pretty clear, even-handed analysis” from the center of the Fed’s policy-making committee, Dwyer said.
Plosser, an opponent of the central bank’s asset purchase plan, is expected to continue his call for a swift end to the program.
…
Interesting video: Congressman addressing the chamber regarding an appropriation for homeland security, I think it’s a few years old and the title is a bit misleading.
http://www.youtube.com/watch?v=KaztexKNf_o
I guess I should add the title.
“HomeLand Security Plans to Kill USA Citizens”
and a quote from the congressman reading the text.
“Should an event occur in urban areas…Jesus…that’s classified”.
Three years ago or so, but still very creepy.
Enough with the “innocent State Department officials killed in Benghazi” propaganda being spewed by FauxNews.
Let me save everyone a lot of time and bother investigating this mess.
What we’re going to find is that the whole Benghazi operation was a CIA operation to support certain Libyan factions (with a secondary purpose of funneling Libyan weapons to Syria?), operating under the facade of a State Department Consulate.
The ambassador had to know what was going on. The “annex” was only a block away…….four bunker sized buildings, positioned to be mutually supporting, with clear fields of fire down all of the streets approaching it. The Libyans aren’t stupid. They knew what this place was about. Note that the mortar attack was “One short round, then the next two were right on”.
The question is……did the ambassador protest the use of the State Department as cover for the CIA? As our government seems to be packed with “GWOT” die-hards, I’m guessing not.
Such a deal…….declare a “Global War on Terror”……then expand the definition of “terror” to “anyone who objects to the way the US Government is doing it’s business”. Then hire terrorists to terrorize the people you have labeled terrorist.
Ooops, sorry, terrorists working/paid by the US Government are “freedom fighters”…….gotta get the nomenclature right.
Killing spies is legal in all countries. No trial needed, they can be executed on sight.
This all happened under the watch of the “most transparent administration in the history of the united states”. Remember the promise of “The One”? Do you have any idea what his team of merry global progressive tinkerers are doing behind the scenes? They are putting our tentacles into every global mess and siding with the radical islamists in every case. You think the world hated us before this administration? Just wait.
Glad to see CNN picking up some media slack on this Benghazi incident.
Is Generation Y Holding Back the Housing Recovery?
Millions of young Americans are unemployed or underemployed, living with roommates or at home with Mom and Dad — instead of buying homes of their own, a new study found. Quentin Fottrell reports. Photo: Getty Images.
Aug. 4, 2013, 8:16 a.m. EDT
Women leave nest, men stay with parents
Gen-Y men seem less able or willing to cut the apron strings
By Quentin Fottrell
As more adults decide to live with mom and dad, young men appear to be less willing to fly the nest than women, a new study finds. This, experts say, could be an early sign of larger economic problems.
Millions of young Americans are living at home, according to a Pew Research Center analysis of U.S. Census Bureau data. The number of “millennials” — adults aged 18 to 31– living at home rose to 36% last year. That represented the highest percentage in the last four decades, and a significant increase from 32% just five years earlier. In 2012, 56% of adults aged 18 to 24 lived in their parental home, Pew found, as did 16% of adults aged 25 to 31. However, millennial males (40%) were significantly more likely than millennial females (32%) to live with mom and dad.
There are some demographic reasons for the gender gap. On average, men tend to marry later than women, says Zhenchao Qian, chair of sociology at Ohio State University. “There are more single young men than women out there,” he says. “This gives unmarried men more time to live with their parents.” Men marry at around 29 years of age, approximately two years older than the average for women, and both sexes are marrying around two years later in life than two decades ago, according to a 2012 survey by Bowling Green State University’s National Center for Family and Marriage Research in Ohio.
Perhaps a more controversial theory: Sons may also have an easier time at home. Even in 2013, parents expect their sons to do less housework than their daughters, Qian says. “Parents give their sons more freedom than their daughters,” says Kit Yarrow, chair of the psychology department at Golden Gate University in San Francisco, Calif. and co-author of “Gen Y.” For Americans aged 18 to 24, “it’s easier for a young man to live at home and still feel independent than it would be for a young woman,” she says. An even less flattering reason: “Women tend to mature, emotionally, faster than men.”
…
Try these reasons on for size (as personally observed)
-More girls want to leave, because of sexually abusive relationships at home (my youngest refuses to move in with her mom……not because she has actually been assaulted, but that she wouldn’t put it past the ex-wife’s hubby, or his sons). This isn’t helped by.
- As noted, if you aren’t going to college, or joining the military, our current society has nowhere for you to go, other than a few rare “Lucky Duck” jobs…….no more manufacturing jobs, no more construction jobs, no apprenticeship programs. Transportation is an issue…….kids get absolutely skinned alive on car insurance. Decent used cars are expensive. So is gas.
The reality is that work for a lot of people is a money losing proposition.
The Republican solution is to eliminate unemployment and disability benefits, and to reduce or eliminate the minimum wage. How this results in anything other than a deflationary spiral into the dirt hasn’t been explained. I guess we’ll make it up on volume.
kidsparents of unemployed adult children living at home get absolutely skinned alive on car insurance.I resemble this remark.
Planning to bring up the discussion with my lovely wife this evening, as my daughter will soon be off to college and not driving the car much over the coming months.
My inclination is to offer to start paying for her insurance again only if she qualifies for the good student discount.
An even less flattering reason: “Women tend to mature, emotionally, faster than men.”
————————————————————————-
Ah… no.
Women never mature emotionally.
FEMALES are unreliable.
Why?
Because they can always duck responsibility by crying.
Works every time; especially on males.
(((shakin my head)))
“Females are unreliable.”
“Why?”
“Because they can always duck responsibility by crying.”
“Works every time; especially on males.”
An adage: The game men play is money. The game women play is men.
If women win by crying then they win because they are giving to men what they need to give to men in order to get what they want from men.
Then can duck responsibility because they are able to convince men to endlessly bail them out. If crying is a tool that works then crying is the tool they will use.
Just as with anyone else, for these women to get what they want they will seek out the path of least resistance.
“City girls just seem to find out early, how to open doors with just a smile.”
Min wage jobs don’t buy houses.
Went to an airshow yesterday. All kinds of Randian warbird owners, crowing about how “they don’t get a penny from the government” to operate their expensive toys.
(That, and the “Salute to Veterans” …….. whether the “veteran” parachuted into Normandy, or spent 20 years stocking the Base Exchange at Fort Bragg….but once again, I digress…..)
Bull$hit. They are getting free use of a county-owned facility. And damn near every one of these airplanes is operated by a “non-profit organization”, where the guy “donates” the airplane (getting a six-seven figure tax writeoff) for starters, then gets to deduct any operating expenses not defrayed by “donations” from John Q Public.
When you’ve had people kissing your ass for 30 years, you start to believe your brand of BS.
I’m tired of the terror warnings… one of the main reasons I left NYC.
Unless Al Qaeda is going to set off some suitcase nukes or unleash a weaponized pox virus, I don’t want to hear about it.
And, you know, if they’re going to either of those things, I’ll deal with it when it happens.
GAH.
I’ve got too much going on to worry about “what ifs?”
We are at the point where the cure is worse than the disease.
Weaponized smallpox is more dangerous to the “terrorists” than it is to us.
Nukes realistically can’t be manufactured without government support. If a government has the capability to manufacture nukes, they are going to keep them for themselves. If for no other reason, it prevents/restricts the US government’s ability to screw with you.
Is it safe to conclude at this point that the 2007-2008 SoCal housing price declines were the warmup act, and the main event will be the eventual collapse of the echo bubble?
The Housing Bubble has lasted so long by now that at this point, an entirely new generation of observers is beginning to notice it. Needless to say, the suggestion that the echo bubble is something new and unconnected to the Fall 2007 housing price collapse represents a serious conceptual error and failure to understand why prices are rising again.
Toils and troubles of a new housing bubble
The real estate market in southern California, like in many parts of the US, is hot again – but we should know better this time
‘As John Maynard Keynes once famously observed about the stock market, it can stay irrational a lot longer than you can stay solvent.’ Photograph: Reuters
It was while I was standing in the living room of a beach bungalow located about a mile from the Pacific Ocean in Los Angeles’ Venice Beach neighborhood, that I heard the phrase “It’s just like 2006″ uttered twice in a 10-minute span of time by two separate people.
There was no irony intended.
Bubble, bubble …
The real estate market in southern California, like in many parts of the United States, is once again as hot as it was back in the last decade, when Robert Kiyosaki told everyone it was okay to buy multiple properties with little money down, and when Suze Orman advised purchasing a piece of property to live in since real estate would be the best investment just about every middle class family could ever make.
We all know what happened next. But the housing crash – well, in the living room of this human dollhouse in Venice Beach, that’s so 2009 or 2010.
The two-bedroom, one bath, under-900-square-foot house was listed for sale at a price of $899,000. At an open house held on July 21, more than one hundred people showed up over the space of three hours. At another, two days later, several dozen. There is a young woman with her mother and broker, frantically measuring walls to see if her furniture will fit in the space. One shopper points to the windows, asking rhetorically why they haven’t been replaced with newer, more pristine frames. Still another woman walks in and tells Jerry Jaffe, the real estate broker listing the home, about all the homes she’s bid on.
“We lost Penmar,” the would-be homeowner says sadly, referencing a recent house sale located a few blocks away.
“We only need one good buyer,” Jaffe responds encouragingly.
The Venice bungalow will, by 5pm the next day, have seven.
Two of the offers for this tiny home are all cash, and a number of others promise a 50% down payment. Several are what Jaffe calls “way over” asking, though he legally can’t share the final price.
Not bad for a property that last sold in a short sale a little more than two years ago for $600,000.
As for the previous owners? They had had paid $870,000 in March of 2007.
It’s back.
Such home sales are taking place all over the Los Angeles basin in recent months. Prices are climbing and they are climbing fast. The Case-Schiller Home Price Index reports that in April, the last month for which they have data, prices increased 3.4% in a month. DataQuick, which also collects information on Southern California home sales, claims home prices in the region increased by 28% year over year, the greatest amount they’ve ever recorded since they began keeping records in 1988.
Breaking a home price record set in 1988 is the sort of statistic that should give would-be home purchasers owners pause. The housing market in Los Angeles crashed after hitting a high in the late 1980s.
But it’s not keeping buyers away, either in Los Angeles or other cities like Phoenix and Las Vegas, which are also seeing price surges. Nationally, home prices are up by 13.5% from June of last year.
Here in Los Angeles, wannabe homeowners tell tales of being shut out of the market because they can’t make all cash offers (nationally, just under one third of homes sold for all cash in June), or afford to give up mortgage contingencies.
Carrie Kangro, a producer and mother of two toddlers, tells me she’s lost out on several Venice and Santa Monica area homes over the past year, including one where the realtor or owner would not even allow her husband to view the property until she had put in an offer. Another – the most recent house she was not able to purchase, listed at $879,000 and ultimately sold to someone who offered $935,000.
Compounding the frenzy: many of these eager homeowners are not individuals at all, but investors. Some, especially in areas like the lower middle class inland empire areas like Riverside County, are Wall Street firms like the Blackstone Group entering the landlord business.
Others, like Los Angeles area based Dossier Capital or ReInhabit, make cosmetic or structural fixes on rundown homes they scoop up in hipster communities like Venice or Silver Lake, adding new windows, floors and, sometimes, square footage by building a second story or other additions, and put them back on the market about a year later and flipping them for significantly more money.
So how long can this last? Well, as John Maynard Keynes once famously observed about the stock market, it can stay irrational a lot longer than you can stay solvent.
…
The California Housing Bubble
Fri, August 02, 2013
…
its different this time. without stocks and homes the economy has negative growth.
I saw somewhere that since 2008 that the equity created by stocks has risen 12 trillion and GDP growth has made of 2 trillion.
Asset bubbles are the growth engine now.
65 percent of purchases made in cash by investors has to be some kind of record, no?
Real estate ‘bubble in the making’: Pro
Published: Thursday, 1 Aug 2013 | 6:32 PM ET
By: Bruno J. Navarro
Cheap credit could be creating a bubble in the housing market, Dani Babb of The Babb Group says.
The real estate market might be heading into troubled territory, Dani Babb of The Babb Group said Thursday.
“I think we have another bubble in the making,” she said. “We’re seeing a lot of numbers that are reminiscent of 2005 and 2006, and I’m concerned about the long-term price stability and ability to maintain the price momentum that we’ve seen over the last year that’s largely been driven by very low interest rates.”
On CNBC’s “Fast Money,” Babb noted that there was a significant driver of the real estate market this time, just like the last bubble.
“We had a bubble last time driven by very easy credit,” she said. “We have a bubble this time, potentially, driven by very cheap credit over a long period of time.”
Babb, whose firm represents $5 billion in investor funds, also pointed out a sharp increase in prices.
“We’ve got a median price that’s grown 13 percent in the last year, and that’s the highest percent gain since 2005,” she said.
“So, if all other factors hold the same and consistent – and we expect similar types of gains over the next, maybe say, one to three years – we could see prices back where they were again.”
The price action is already appearing in a few markets, Babb added.
“We’re already starting to see some signs of that in Miami, Boston, California, where we’ve got 65 percent of purchases made in cash by investors,” she said.
Cash buyers are often also paying a premium of 10 to 15 percent over asking prices, Babb added.
…
Corelogic was among the most vocal Housing Bubble denialists during the runup to the last crash.
Corelogic: There is no housing bubble
Published: Tuesday, 16 Jul 2013 | 12:37 PM ET
By: Diana Olick | CNBC Real Estate Reporter
Home prices are up over 12 percent nationally from a year ago, and limited supplies of homes for sale continue to push that number higher. Demand is coming back, home builder sentiment is at a seven-year high and real estate agents are reporting bidding wars. None of this means housing is heading back to the bubble, according to economists at CoreLogic.
“The fundamentals are there right now, and the market is responding,” said Mark Fleming, chief economist at CoreLogic.
Even in the fastest growing markets, where prices are up around 20 percent from a year ago, Fleming pointed to still near-record affordability. For housing price affordability to return to the average level that we saw in the years between 2000 and 2004, he said, either home prices would have to rise an additional 47 percent or interest rates rise to 6.75 percent. Only Washington, D.C., and Hawaii are “technically unaffordable,” according to CoreLogic.
…
Investors are moving out of housing. Here’s why
Published: Monday, 22 Jul 2013 | 12:41 PM ET
By: Diana Olick | CNBC Real Estate Reporter
June existing home sales miss
Monday, 22 Jul 2013 | 10:00 AM ET
CNBC’s Diana Olick reports that sales of existing homes were down 1.2 percent in June. They had been up 3.4 percent in May. Inventories were up, too, though they were lower year-over-year.
They swarmed the distressed housing market, buying thousands of foreclosed properties and pushing prices higher faster than anyone expected. Now investors are pulling back, dissuaded by the higher prices they themselves brought about.
“Perhaps the numbers aren’t working out,” said Lawrence Yun, chief economist of the National Association of Realtors, which reported that just 15 percent of June sales were by investors. That is the lowest share since the association began tracking this cohort in October 2008.
Current homeowners are now driving the housing market, as even investor traffic fell in June for the fourth straight month, according to Campbell/Inside Mortgage Finance. That could mean slower sales going forward, as still tight inventory keeps move-up buyers in place. That, and negative home equity.
David and Heather Littlejohn are one of about 10 million underwater borrowers in the U.S. Millions more don’t have enough equity to afford a move up. The Littlejohns would love to sell the Oregon home they built as newlyweds in 2005 and move to a larger one, but that would mean paying into their mortgage.
“It is really frustrating. We’ve had several friends that have gotten into larger homes, and had we known we would still be here several years later, we probably would have designed this home differently,” said Heather.
At the height of the foreclosure crisis, investors—some individual and some larger funds—were making up more than a third of home buyers*. Most set their sights on the West, where the crisis hit hardest. That is why prices in that region are up more than 20 percent now from a year ago, but are still way off from where they were at the peak of the boom.
“Everybody else seems to be getting out OK on this one, and here we are just the perfect timing and circumstance to be on the outside looking in,” said David. “There’s this theoretical wealth creation all around us, and yet we’re not participating in it, so, yeah, it’s pretty frustrating.”
…
* Note in another article I recently posted, the percentage of investor purchases reported in LA is 65.
How about downsizing your JUNK? Ill bet you have enough accumulated JUNK to empty a whole bedroom…..can you fit your cars into the garage?
we probably would have designed this home differently,” said Heather.
Sy Harding, Contributor
I cover being street smart about the stock, bond and gold markets.
Investing
8/02/2013 @ 3:44PM
The Real Estate Mini-Bubble Will Be Economy’s Next Problem
The housing and automobile industries are the main driving forces of the economy – in both directions. That makes sense since consumer spending accounts for 70% of the economy, and homes and cars are the biggest ticket items consumers spend money on. More importantly, unlike most purchases, it’s not just spending the money they made last week, but through loans and mortgages it’s spending in advance money they will earn for the next five to thirty years.
That housing and autos therefore continue to be the economy’s main driving forces was dramatically demonstrated when both home and auto sales were so instrumental in driving the economy and markets higher after the 2000-2002 meltdown. And then when the resulting real estate bubble burst in 2006, housing and autos led the way down into the sub-prime mortgage catastrophe and then the meltdown into the 2008-2009 Great Recession.
Their powerful influence continued when in 2008 and early 2009 $trillions were spent, mostly on the bailout of banks and the rest of the financial sector, but the economy didn’t begin recuperating to any noticeable degree until the housing industry and automakers began their substantial recovery.
And they have indeed experienced a substantial recovery.
While the auto industry in Europe continues in recession (auto sales down 8.2% last year to the lowest level in 18 years), by 2012 U.S. automakers had jumped from reverse gear all the way into 4th gear, posting their highest annual sales since 2007, with the pace of sales continuing so far this year (although automakers missed the forecasts for their sales growth in July).
Meanwhile, for close to two years the real estate sector has been blasting through the most optimistic forecasts for its recovery.
At the end of May new housing starts were up a huge 28.1% year-to-date. Existing home sales had increased 15.2% over the previous 12 months. Home prices have shot up 12.2% nationally over the last 12 months, the biggest year-over-year jump since March, 2006 (near the peak of the housing bubble). Prices were up more than 20% in some of the trouble spots of the last housing bubble like Florida, California, and Las Vegas. It’s been hot. The National Association of Realtors reported two weeks ago that 47% of all homes sold in June were on the market for less than a month. As in the big bubble of 2005-2006, multiple bids and selling prices higher than asking prices have been fairly common.
However, there have been some troubling signs in the recovery, easily ignored because the basic numbers of sales and prices have been so impressive.
For instance, it’s no secret that the recovery has been mostly driven by institutional investors building inventories of rental properties. For them it’s all about profit. So far they’ve been able to take advantage of low interest rates and depressed home prices. But as prices rise and that opportunity fades away there are already indications they are dialing back on adding more homes to their inventory. Speculators looking for quick profits by buying at the distressed prices and flipping for a quick profit have also been significant factors in the sales numbers. RealtyTrac reports that single family home flips, where a home is purchased and sold again within six months, were up 19% in the first half of this year, and up 74% from the first half of 2011. But RealtyTrac expects that interest to also fade as bargain prices disappear, and is already seeing ‘buying to flip’ tapering off in many markets.
A sustainable housing recovery has always needed real home buyers who intend to live in the homes, and particularly a healthy percentage of first-time home buyers. We haven’t been seeing that, and we’re not liable to any time soon with the higher home prices and higher mortgage rates raising monthly mortgage payments significantly.
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Housing rebound fuels fears of another bubble
By Ruth Mantell, MarketWatch : August 2, 2013
New homes spring up in the Phoenix area. The biggest price gains are occuring in states that experienced the worst housing bust.
WASHINGTON — As home prices rise, so do concerns that a new housing-market bubble may be appearing, particularly in cities with double-digit annual growth rates.
“I wouldn’t say that we have bubbles today. But if prices keep rising at these rates, pretty soon you will be in bubble territory,” said Dean Baker, co-director of the Center for Economic and Policy Research, a Washington think tank. “Generally, you don’t see situations with rapidly rising prices and they just stop.”
Before the bubble burst, year-over-year price growth topped 17 percent. The current rebound has yet to reach such a frenzied pace, though home prices recently posted year-over-year growth of 12 percent, the fastest rate since 2006, according to the Case-Shiller index that tracks 20 cities.
Many of the cities with the largest price gains are where housing crashed hardest when the bubble burst. In Las Vegas, home prices recently posted year-over-year growth of 22 percent — but remain more than 50 percent below a 2006 peak, according to the most recent S&P/Case-Shiller report. Prices in Phoenix and Miami are also more than 40 percent below local peak levels despite jumps.
“What’s important to keep in context is that those double-digit gains are off of very low prices. Even with those gains, prices are still relatively low,” said Frank Nothaft, chief economist at federally controlled mortgage buyer Freddie Mac.
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Is the Housing Bubble Rising Again?
By Richard Barrington
Published July 31, 2013
Home prices recently recovered to early-2004 levels — or to where they were about three years before the housing bubble peaked. As the housing market continues to rally, retracing price points set more than nine years ago, it raises a question: Is the housing market poised to repeat the boom-and-bust cycle again?
A comparison of related factors shows that while housing prices may be the same as they were in 2004, other things are quite different.
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First Person: I’m Not Selling During This New Housing Bubble
By Laura Quinn | Yahoo! Contributor Network – Thu, Aug 1, 2013 7:31 PM EDT
It’s become obvious to me that we are in the beginning stages of a new housing bubble. I look around me and can see that homes of the same size and in the same condition that sold for only $95,000 only one year ago are now selling for $155,000. According to a recent article by AP, new homebuilders are feeling more confident than ever. In fact, a survey of homebuilders by the National Association of Home Builders/ Wells Fargo shows confidence is at a 7-year high. I don’t even have to read about builder sentiment to know it’s true. Living in South Florida, I can hear the buzz of new home construction in subdivisions that were like ghost towns when the housing market crashed. As a person who bought at the top of the bubble, I learned a few things that will change how I act with this new housing bubble.
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Got BRICs investors?
Kenneth Rapoza, Contributor
I cover Brazil, Russia, India & China.
Investing
7/29/2013 @ 11:06AM
China Crack Down On Property Bubble Sends Rich To House Hunt Abroad
New survey from China property experts at Juwai in Shanghai show a third of home buyers looking outside China for housing. The U.S. is their top choice.
Money knows no boundaries.
Over the last two years, the Chinese government has been wrestling with a property bubble on the mainland. The same can be said about Hong Kong, where, according to Knight Frank, despite less sales in the market, housing prices rose over 20% recently. The government has increased down payments and taxes on new property purchases, making it more complicated for buyers. The wealthiest of the lot are now looking overseas to invest in second and third homes. Money knows no boundaries. And China’s lust for property knows no bounds.
“The sheer volume of Chinese domestic property transactions, at roughly $600 billion in the first six months of this year, demonstrate the buying power of the Chinese consumer,” says Andrew Taylor, CEO of Juwai.com, a real estate news and information website based in Shanghai. Real estate is a favorite investment, along with education, for Chinese families.
Chinese consumers are some of the youngest of all global first home buyers. International property is now often cheaper than in major Chinese cities and can fulfill their financial and lifestyle needs. As Chinese buyers increasingly enter into the global market over the next few years, it will have a large impact on international property prices, especially in areas where the Chinese are hot buyers right now, like Southern California.
Taylor said that the United States is far away the market of preference for wealthy Chinese house hunters.
China’s housing market is like a runaway train.
On July 18, the National Bureau of Statistics (NBS) in Beijing said that prices rose for 63 out of 70 cities in just one month, with the biggest increase being 2.4%.
Compared with June 2012, the sales prices of newly constructed apartment buildings fell in just one city and rose everywhere else, with the highest price spike going up by nearly 17%, according to the NBS.
Three cities had their biggest gains since the government began using its current pricing methodology in January 2011: Guangzhou with a 16% increase, Beijing with a 13% advance and Shanghai with a 12% gain.
Supply is becoming shorter, reports mainland government-funded think tank DTZ Greater China. In the past two years, developers have not replenished their land banks to start new construction work. And the government doesn’t want them too. Empty buildings in second and third tier cties in China is now a common stereotype used to describe the China housing bubble. In Beijing, for example, the residential floor area under construction last year dropped 37.3%, but sales climbed more than 30%, according to DTZ.
Last week, Juwai released a survey of globe trotting home buyers. Seventy-three percent said that property was cheaper and of better value overseas than it was in China. Another 73% said they now have second thoughts about buying a home in China, and 29% said that the government’s choke hold on housing has them looking overseas for real estate now.
Chinese buyers spent $28.7 billion on overseas residential property in 2011, and the Global Chinese Real Estate Congress projected sales to reach $50 billion by 2012 or 2013.
International real estate analysts say that those Chinese buyers already investing internationally are the early adopters rather than the mainstream rich. Over the next five years, the mainstream rich will enter the market creating a new wave of global property investment. American realtors will learn the meaning of “Xie Xie” real quickly.
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LV = SoCal East
Home prices soaring, inventory shrinking: Is Las Vegas back in a real estate bubble?
By Eli Segall
Wednesday 31 July 2013 2 a.m.
Anthony Simmons knows a thing or two about housing bubbles.
While he was a linebacker for the Seattle Seahawks a decade ago, Simmons also flipped houses in Las Vegas. He had no real estate expertise but became enmeshed in the frenzy of the go-go years, buying and selling 10 houses in five years.
Then came the crash and the near destruction of Las Vegas’ economy.
Now housing prices are soaring again, but Simmons is wary of the surge.
“We’ve been there before, and it didn’t turn out too well,” said Simmons, who now owns Sharkey’s Cuts for Kids, a Henderson hair salon.
After several ice-cold years, Las Vegas once again is one of the hottest housing markets in the country.
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There really are only two kind of commentators: Those who recognize Housing Bubble reflation, and those who deny it.
Why We Are Not Entering A Housing Bubble
The Federal Savings Bank sheds light on why the real estate market is not entering a pre-housing debacle bubble.
The Case Shiller National Home Price Index remains 25% below its March 2006 level implying there’s still more room for housing prices to climb.
Chicago, IL (PRWEB) July 28, 2013
When prospective clients walk into The Federal Savings Bank, an institution specialized in veteran loans, they sometimes have fears that buying a home in the current market dangerous as a bubble may be forming. While new home sales have climbed 38% since last year with the June figure at five year highs, the bank continues to urge individuals to apply for a mortgage now.
“When we speak to prospects who fear a housing bubble, the first thing we tell them is that they need to apply for a loan. Applying for a mortgage lets the applicant know if they can even afford a home, and if so, at what price,” says Nick a bank at The Federal Savings Bank. “Then, if the applicant can afford a home we tell them prices remain relatively cheap compared to 2006 levels.” Indeed, the Case Shiller National Home Price Index remains 25% below its March 2006 level implying there’s still more room for housing prices to climb.
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Some big U.S. cities at risk of another housing bubble -Shiller
By Tim Reid
June 27 | Thu Jun 27, 2013 6:30pm EDT
(Reuters) - Dramatic home price gains in some of America’s largest cities point to a potentially new housing bubble in those areas, according to Robert Shiller, who helped create a closely watched gauge of U.S. housing prices.
Shiller said big price gains in Las Vegas, Los Angeles, San Francisco, Miami and Phoenix, fueled in part by a large influx of outside investor money, are a possible sign of trouble ahead.
“There is a risk of bubbles in these cities,” Shiller, a co-founder of the S&P/Case-Shiller Home Price Index, told Reuters on Wednesday. “House prices increases have been dramatic. It looks like the beginning of the last bubble.”
There is a risk that prices could rise for another year in these areas and then fall back, hurting newer buyers as they try and compete in markets where low inventory and all-cash Wall Street investors were pushing prices upwards.
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Someone within the US Senate edited Edward Snowden’s Wikipedia page to change his description from ‘dissident’ to ‘traitor’•
The editor’s IP address was tracked back to the US Senate
•The edit was made one day after Edward Snowden was granted political asylum in Russia
By Ryan Gorman
PUBLISHED: 21:41 EST, 3 August 2013 | UPDATED: 13:56 EST, 4 August 2013
In a somewhat transparent move, the edit came one day after Snowden was granted a one year asylum in Russia. While opinions may be divided on what Snowden really is, Wikipedia generally snuffs partisan edits out pretty quickly.
Other entries made by the Capitol Hill regular include deleting a word from the first paragraph of an entry for ‘The Five People You Meet in Heaven,’ clarifying that the FSIS is part of the USDA, not the FDA in an entry for ‘Pork,’ and correctly noting in the entry for the ‘Ruger Super Redhawk’ that the firearm is still ‘in production’ with ‘4” availability,’ among others.
The editor likely wasn’t aware Wikipedia tracks IP addresses and didn’t know the change would be tracked back to the Hill – or maybe they did and it’s all just part of a bigger conspiracy.
http://www.dailymail.co.uk/news/article-2384188/Someone-US-Senate-edited-Edward-Snowdens-wiki-page-change-description-dissident-traitor.html?ito=feeds-newsxml -
Who has a lower approval rating: Snowden or Congress?
Approval rating of Congress is dismal as lawmakers take summer break
Posted on August 4, 2013 By Griselda Nevarez Politics
Approval rating of Congress: Members of Congress, are on a 5-week summer recess.
Lawmakers took off this weekend for their August recess. This comes as Americans have a low approval rating of Congress.
With the 113th Congress’ inability to get much done and with congressional leaders now taking off for a five-week summer break, it is no wonder the approval rating of Congress is so low.
Poll after poll shows that members of Congress have an approval rating that is in the mid-teens, while their disapproval rating tops 70 percent. After aggregating the nation’s top polls, Real Clear Politics found that the approval rating of Congress is at 15 percent and disapproval rating at 76 percent.
A Gallup Poll released in June sites several reasons for why Americans disapprove of the job Congress is doing: party gridlock, not compromising, not getting anything done, care too much about politics and not about country.
With such low approval ratings, the 113th Congress is on track to be remembered as one of the least popular Congresses in the nation’s history.
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Poll: John Boehner’s Favorability Rating Just Above George Zimmerman’s, Edward Snowden’s
The Huffington Post | By Ariel Edwards-Levy Posted: 07/24/2013 12:46 pm EDT | Updated: 07/24/2013 1:32 pm EDT
Twice as many Americans view House Speaker John Boehner (R-Ohio) negatively than view him positively, according to an NBC/WSJ poll released Wednesday. Poll respondents ranked Boehner just ahead of Edward Snowden and George Zimmerman in popularity.
Only 18 percent of Americans have a positive opinion of Boehner, while 36 percent view him negatively, the poll found. Boehner’s unfavorable ratings, which stood at 29 percent last December, jumped in the aftermath of January’s fiscal cliff debate.
Boehner’s rating, at a net -18, puts him far behind former President George W. Bush and ahead of only Snowden and Zimmerman — the two least popular public figures tested. NSA leaker Snowden had an 11 percent favorable rating and a 35 percent unfavorable rating, while Zimmerman, who was acquitted in the death of Trayvon Martin, had a 14 percent favorable rating and a 39 percent unfavorable rating.
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There is some intense lobbying going on behind the scenes regarding the choice of the next Fed chair.
ft dot com
August 4, 2013 3:28 pm
Why Obama should pick Yellen to lead the Fed
By James Hamilton
President Barack Obama was recently asked what kind of person he is looking for to head the US Federal Reserve. His answer: someone who will help the economy grow while keeping inflation in check and making sure we do not create new instabilities in financial markets. I think that is an excellent assessment of what we need, and a good summary of why Janet Yellen, the Fed’s current vice-chair, would be the right choice.
Ms Yellen was one of the first Fed officials to see the problems developing in the US housing market. In late 2005, for example, when she was president of the San Francisco Fed, she explained her concerns about the housing market. “If house prices fell,” she warned, “the negative impact on household wealth could lead to a pullback in consumer spending. Certainly, analyses do indicate that house prices are abnormally high – that there is a ‘bubble’ element.”
Many respected analysts, within and outside the Fed, did not share her appreciation of what was going on. In August of that year, Professor Raghuram Rajan of the University of Chicago presented a paper at the Fed’s Jackson Hole conference that proved to be a prophetic analysis of the problems developing in financial markets. He warned that the combined effects of deregulation, complicated new financial products, and the overreliance of the financial system on short-term borrowing had produced a fragile environment, suggesting that incentives for excessive risk-taking could lead financial managers to “follow the herd into disaster”.
His ideas were rejected by most of the distinguished professors and central bank leaders who attended the conference. Harvard’s Lawrence Summers – who is now Ms Yellen’s main competitor for the Fed chair – said that he found “the basic, slightly Luddite premise of this paper to be largely misguided”.
At the outset of the crisis, however, Ms Yellen was also one of the people who saw most clearly the magnitude of the problems facing the economy as Prof Rajan’s predicted financial disaster began to unfold. Her speech to the National Association for Business Economics in 2007, when reread today, strikes the reader as amazingly prescient. Many Fed officials at the time felt that, since the subprime mortgages represented only 10 to 15 per cent of all mortgages, problems with these loans would not be enough to cause major economic damage. But Ms Yellen noted that the complex system of derivative instruments linked to subprime mortgages, such as collateralised debt obligations and credit default swaps, could lead to great uncertainty among lenders about the vulnerability of particular borrowers and a devastating withdrawal of credit.
Ms Yellen further emphasised that the mathematical models companies had used to evaluate the risks of those instruments took insufficient account of the consequences of a significant downturn in house prices. Again, her assessment proved to be right on the mark.
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As someone who has known Ms Yellen since her days as a professor at Berkeley, I have some thoughts about how she does it. She has a very impressive intellect but does not feel a need to show it off. Instead, she has an amazing knack for always asking the right questions. If someone disagrees with her, her first instinct is to try to understand why they have reached a conclusion different from her own. For this reason, Ms Yellen is one of the people I would most trust to find out what the key problems are and what needs to be done in any new situation.
But her intellectual openness should not be construed as a lack of toughness. Precisely because she has a gift for analysing the situation very clearly, she is also very committed to following through on what she perceives to be the appropriate policy.
Finally, I would like to call attention to Ms Yellen’s straightforward way of expressing herself. I expect her to be among the most effective leaders in the history of the Fed at communicating what it is trying to do and why. That is something that will surely be welcomed by both Wall Street and Main Street.
The writer is a professor at the University of California, San Diego
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‘“If house prices fell,” she warned, “the negative impact on household wealth could lead to a pullback in consumer spending. Certainly, analyses do indicate that house prices are abnormally high – that there is a ‘bubble’ element.”’
Many of her colleagues at the Haas School of business had already sniffed out the housing bubble long before 2005.
I guess it never hurts to put in a plug for your former boss?
ft dot com
Last updated: August 1, 2013 12:37 pm
Why Obama should pick Summers to lead the Fed
By Bradford DeLong
If times were normal, first choice among the Fab Five would be Yellen, writes Bradford DeLong
After eight years as chair of the US Federal Reserve, Ben Bernanke is stepping down. Fairly soon, President Barack Obama will need to choose a successor – a decision that will be among the most important that he will ever make. I believe he should be looking for a candidate who passes three tests.
First, he must find someone with the right experience. They must have served in a similar role, and served with distinction. Washington is an unusual place, and its bureaucracies are unusual institutions. People appointed to high federal office can learn on the job. But it is better if the bulk of that learning takes place before one is chairing the Fed.
Second, they must have the right values. Right now, America’s biggest economic problem is that employment is too low. In normal times there may be an argument that the Fed chair should care deeply about inflation and less so about other goals. But these times are not normal. The new chair must feel the pain of the unemployed in their viscera.
Third, they must understand the right model of the economy. Since 2008, Mr Bernanke has worried too little about how spending might get trapped in a low-level vicious circle and how America might suffer from a prolonged jobless recovery. He has been continually surprised by growth, employment, and inflation outcomes – all of which have been constantly and consistently lower than he expected.
A good candidate for the Fed will be someone who understands the Minskyite and Keynesian dimensions of the economy: that herding financiers can do truly remarkable amounts of damage through their exuberance and pessimism, and that the spending flows that determine production and employment do not rebalance themselves without government assistance.
Five candidates are way above the rest: former Treasury Secretary Lawrence Summers; current Fed vice-chair Janet Yellen; former Fed vice-chair Alan Blinder; former Council of Economic Advisors chair Christina Romer; and former National Economic Council chair Laura Tyson. These are the Fabulous Five. Choosing any of them would make me happy. Choosing anybody else would be an unforced error.
If times were normal, my first choice among the Fab Five would be obvious: Ms Yellen. Back in 1994, the Clinton administration pulled Ms Yellen out of the academy and on to the Fed. She was a brilliant choice, with a profound understanding of economics and a proven record as a consensus-builder. She is often the most insightful person in the room, but does not feel the need to constantly prove herself such – and she has a 15-year record of success in Washington.
But these are not normal times. In normal times, the “short run” in which the economy remains below its normal relative level of activity is a year or so. It has been five years since we saw normality, and few would lay long odds that we will escape without a lost full decade.
In normal times the Fed’s senior policy makers are economic priests following a settled gospel of technocratic economic management. But right now, as John Maynard Keynes said in a similar crisis in the 1920s: “no one has a gospel”. Therefore, Keynes said then, “the next move [must be] with the head …” And the Fed, over the next four years, is the best place to do the thinking that must be done to recover and rebuild.
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HEARD ON THE STREET
July 31, 2013, 5:59 p.m. ET
Fed Can’t Taper Over Cracks
Economic Growth Isn’t Playing Along With Central Bank’s Plan to Begin Winding Down Bond Purchases This Fall
By JUSTIN LAHART
CONNECT
The economy hasn’t been growing nearly as quickly as the Federal Reserve thought it would. That alone probably isn’t enough to shake its intention to start reducing bond purchases in September, but it can’t be feeling as comfortable with that plan as it had been.
The Commerce Department reported Wednesday that gross domestic product rose at a 1.7% annual rate in the second quarter, a figure better than the 0.9% economists were looking for. But the number was clouded by caveats.
Inventory accumulation accounted for 0.4 percentage point of the gain, which could drag on growth in the third quarter as companies work off stockpiles. Government spending didn’t slip as much as most economists reckoned it would in the second quarter, which may only mean the effects of fiscal tightening on growth will be prolonged. Finally, revised data showed that GDP rose just 1.1% in the first quarter, rather than the previously reported 1.8%.
Back in June, when the Fed’s policy-setting committee signaled its plan to scale back Treasury and mortgage-bond purchases, its 2013 GDP forecasts looked optimistic, but attainable. Now they look out of reach: The economy would have to advance at a 3.5% pace in the second half to hit the Fed’s forecast.
The Fed tweaked its statement Wednesday from the one it issued when it last met in June, slightly downgrading its description of economic growth and highlighting rising mortgage rates and the low rate of inflation as areas of concern. But the changes weren’t substantial enough to indicate it is rethinking its plan to trim bond purchases.
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So much for that pullback idea: Stocks keep climbing
Published: Thursday, 1 Aug 2013 | 9:47 AM ET
By: Bob Pisani | CNBC “On-Air Stocks” Editor
Adam Jeffery | CNBC
Markets may be throwing in the towel on the idea of a stock pullback. At least that’s what it looks like. I know, what pullback? Between the Dow’s historic intraday high on July 23rd to the intraday low on July 25th, there was only a drop of 1.3 percent…we can’t even get a five percent pullback anymore!
Why not? First, stock volume in July has been light — not just seasonally light, but July 2013 volume is well below July 2012 volume. That means there is no avalanche of buying or selling interest. Second, with a roughly 5 percent gain in the S&P 500, it’s clear that what selling occurred was met with new buyers standing in the wings.
Why? Perhaps most importantly, the trading community has become more comfortable with the Federal Reserve tapering its massive bond buying. There’s a belief the economy can handle it, and the Fed has done a reasonably good job of assuring everyone the tapering will be very gradual.
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