The Crisis Of 2008-2009 Is Still With Us
This Reuters article by Andy Home is the Sunday topic, and provides a very good summary of interrelated bubbles. “‘Why did nobody see it coming?’ With this simple question, posed to Professor Luis Garicano of the London School of Economics in November 2008, Britain’s Queen Elizabeth famously summed up the layman’s astonishment that an obscure part of the derivatives universe could trigger a global financial crisis.”
“A similar question might be posed of the world’s miners right now. Having collectively bet the house on a commodities ’supercycle’ only to see the ’super’ part of that cycle dissolve in front of their eyes, they are now fighting the numerous fires engulfing their overstretched balance sheets. They simply don’t appear to have seen it coming.”
“But then, if you believe Andrew Mackenzie, chief executive of BHP Billiton, they didn’t see the original boom coming either. Speaking at the AFR Summit in Melbourne earlier this week, Mackenzie confessed that the economic rise of China earlier this century ‘happened at a scale and a pace we simply didn’t see coming.’ ‘Many (including BHP Billiton) were unprepared for what has been the greatest commodities boom of our time.’”
“Having failed to foresee the boom, they also failed to foresee the bust. ‘While BHP Billiton anticipated emerging trends that signaled the end of the boom, we didn’t expect the scale and the speed with which it happened.’”
“But how did nobody see it coming? The answer may at least in part go all the way back to that royal question on economics. It’s not just that the Crisis of 2008-2009 is still with us in the form of ‘whatever it takes’ central bank intervention to prop up still foundering economies. It’s more that the current ’slowdown’ in China has its roots in the same collapse of the house of over-mortgaged U.S. housing cards.”
“Faced with an export shock rippling out from what soon morphed from a financial to a manufacturing crisis, Beijing unleashed its unprecedented domestic stimulus package. The twin pillars of this gargantuan stimulus were infrastructure and housing. In the short term Beijing’s emergency measures did the trick in terms of both insulating the Chinese economy from the collapse in trade everywhere and firing up commodity-dependent economies such as Australia and Brazil.”
“It’s the play-out of the longer-term negative effects that have caused the ’super’ to drop off the ’supercycle.’ Too much property was built too quickly, particularly in smaller, new cities. Too much capacity was built to feed what was an unsustainable rate of construction in industries such as steel. And too much debt, often of dubious quality, was accumulated in the credit binge. Quite simply, one housing bubble, that in the United States, created another one in China.”
“It’s the engineered deflation of the Chinese housing bubble that is now roiling the world’s metal producers. It could be a long process.”
“With hindsight the warnings of a potential commodities crash were there for everyone to see. Rather than being hidden in the spreadsheets of market derivatives quants, as was the case in the U.S. housing crash, they were all too visible in the form of newly-built but eerily deserted housing complexes across China’s lesser cities. What those photos of Chinese ghost cities were telling us, though, was that this was not business as usual, even by Chinese standards. As Macquarie puts it, ‘bluntly’ to use its own word, ‘China got urbanization very wrong.’”
“If Chinese central planners got urbanization wrong, the world’s miners were guilty of putting too much faith in Beijing’s ability to engineer the Chinese economy in any way they saw fit. Both misread just how profound had been the original Crisis and just how double-edged was the sword that Beijing wielded to tackle it. As with the original financial meltdown, everyone involved saw it as business as usual and strove to do the best job they could, which in the case of BHP and its iron ore peers, meant digging more stuff out of the ground as efficiently as possible. Because that was in fact the less-reported answer to the queen by Garicano.”
“Writing in an editorial for The Guardian newspaper shortly after, he explained that ‘what I told the Queen is that the reason the situation got out of hand is that those working at every point in the lending chain were eager to continue doing the job they were paid to do’ from mortgage agents to lending banks to rating agencies to asset managers.”
“And there were plenty of warnings from commodity analysts, particularly those who had spent time in those Chinese ghost towns. But having failed to see the boom coming, the world’s miners were in no mood to hear that it wasn’t going to continue for a long time.”
“‘Why did nobody see it coming?’ With this simple question, posed to Professor Luis Garicano of the London School of Economics in November 2008, Britain’s Queen Elizabeth famously summed up the layman’s astonishment that an obscure part of the derivatives universe could trigger a global financial crisis.”
You have to love it when an elderly Queen points out that a large number of economics experts aren’t wearing any clothes!
“This is the strongest global economy that I’ve seen in my business lifetime” — Henry Paulson, July 2007
That beaut is right up there with NAR’s “we have a shortage of housing”.
It is difficult to get a man to understand something, when his salary depends on not understanding it.
A scientist friend of mine has a hobby of looking up very old science papers. He concluded that some of the best quality science — i.e., scientific method, variable isolation, no holes in the data, reproducible results, no hidden agendas — came out of Soviet Russia. In that society, most jobs were paid no matter what they did, so the scientists were freed from chasing money or the fear of being laid off. As a result, they had the time and freedom to do high-quality science.
“… so the scientists were freed from chasing money or the fear of being laid off.”
Which brings us back to the discussion of Global Warming/Climate change.
By what convoluted logic did you come to that conclusion? That 98% of climate scientists agree that warming is man made is global; meaning scientists from around the world. The scientific communities in every country. That there is some kind of unspoken conspiracy by US scientists to promote global warming so they can get a paycheck is completely absurd.
There are more important things to pine about kiddo.
“It is difficult to get a man to understand something, when his salary depends on not understanding it.”
How ironic that you of all people should say such a thing.
I was quoting HL Mencken. Yes, I know you hate government. Hate away.
Donk,
It’s not a matter of like. Government involvement in anything results in failure. Housing is a perfect example.
That quote is not from H.L Mencken, it is from Upton Sinclair.
These Russian scientists?
“More than 3,000 mainstream biologists were sent to prison or fired or executed as a part of this campaign instigated by Lysenko to suppress his scientific opponents.”
https://en.wikipedia.org/wiki/Lysenkoism
More from wiki:
“Lysenko’s widespread popularity provided him a platform to denounce theoretical genetics and to promote his own agricultural practices. He was, in turn, supported by the Soviet propaganda machine, which overstated his successes and omitted mention of his failures.
This was accompanied by fake experimental data supporting Lysenkoism from scientists seeking favor and the destruction of counter-evidence to Lysenko’s theories. Instead of performing controlled experiments, Lysenko claimed that vernalization increased wheat yields by 15%, solely based upon questionnaires taken of farmers.”
No fear of layoffs
Sounds like gov
“With hindsight the warnings of a potential commodities crash were there for everyone to see. Rather than being hidden in the spreadsheets of market derivatives quants, as was the case in the U.S. housing crash, they were all too visible in the form of newly-built but eerily deserted housing complexes across China’s lesser cities. What those photos of Chinese ghost cities were telling us, though, was that this was not business as usual, even by Chinese standards. As Macquarie puts it, ‘bluntly’ to use its own word, ‘China got urbanization very wrong.’”
Central planning seems to be working as badly today as it ever did.
At what point did central planning take hold in the U.S. economy?
Bretton woods?
190? invention of the fed
“At what point did central planning take hold in the U.S. economy?”
Centralized planning will continue to strengthen its grip as Washington DC keeps growing. No ifs, ands or buts about it.
As far as when it took hold? Started with Lincoln; became much worse with Wilson. Who knows where the inflection point is. My guess is that the “inflection point” is different for each individual.
Some people have a need to be led, to submit, to be “safe”. Others don’t.
Most
Somepeople have a need to be led, to submit, to be “safe”. FewOthersdon’t.It has always been this way, which is why there have been chieftains, kings, emperors and “leaders” throughout history.
At what point did central planning take hold in the U.S. economy?
So, we have “five year plans” like the Soviets once did, with targets for agricultural, mining and industrial production?
Is there a chocolate ration I haven’t been told about?
Could G-20 central bankers bail out the commodities gamblers through a coordinated writedown of the dollar?
Bloomberg Business
Shades of Plaza Accord Seen in Barrage of Stimulus After G-20
Rich Miller
March 17, 2016 — 4:00 PM PDT
Pimco adviser says actions suggest tacit deal in Shanghai
Other analysts are skeptical that moves are coordinated
Policy makers across the world are acting in ways that suggest there may have been more to last month’s Group of 20 meeting in Shanghai than mere platitudes about promoting global economic growth.
In the past few weeks, officials from China, the euro area, Japan, the U.S. and the U.K. have taken a barrage of actions to keep the world economy afloat and currency markets calm.
That’s led some analysts to conclude that there is indeed a secret Shanghai Accord, akin to those reached in an earlier era at the Plaza Hotel in New York and at the Louvre Museum in Paris. The Federal Reserve on Wednesday capped off the series of moves by global policy makers by forecasting a shallower-than-anticipated rise in interest rates this year, with Chair Janet Yellen stressing the risks from a weaker global outlook and market turbulence.
Behind the suspected agreement, according to Joachim Fels of Pacific Investment Management Co. and David Zervos of Jefferies LLC, is a belief that a further major dollar rise against the euro and the yen would be bad for the global economy.
“There seems to be some kind of tacit Shanghai Accord in place,” said Fels, who is global economic adviser for Pimco, which oversees $1.43 trillion in assets. “The agreement is to roughly stabilize the dollar versus the major currencies through appropriate monetary policy action, not through intervention.”
…
https://en.m.wikipedia.org/wiki/Plaza_Accord
Tom Keene on bloomberg Surveillance has been talking about the Plaza Accord for many months now…
Laguna Niguel, CA Housing Market Implodes; Prices Crater 7% As Housing Inventory Balloons Statewide
http://www.zillow.com/laguna-niguel-ca/home-values/
lots of good market prognosticators here on this bb
I don’t remember anyone calling oil down
BTW re selling fast in my hood S of dc
Hilary coming and going to hire feds and give Oxide a fat raise
Are you sure?
Arlington, VA Housing Prices Crater 9% YoY
http://www.zillow.com/arlington-va-22207/home-values/
per Zillow hot= .9% increase ?
that doesn’t feed the shark
Are falling prices now considered hot?
Cool.
Hilary coming and going to hire feds and give Oxide a fat raise
FWIW, they were much better under Bush than under Obama:
http://www.fedsmith.com/wp-content/uploads/2014/03/fedpay2013.jpg
anyone here predict the oil collapse?
lots of good prognosticators right here
Copper signaled the end of the boom. It still suggests that commodities have another 50% to fall.
“Writing in an editorial for The Guardian newspaper shortly after, he explained that ‘what I told the Queen is that the reason the situation got out of hand is that those working at every point in the lending chain were eager to continue doing the job they were paid to do’ from mortgage agents to lending banks to rating agencies to asset managers.”
“eager to continue doing the job they were paid to do”
Which suggests that if they did not do the job they were paid to do then they would have to find something else to do or else starve.
Lenders lend because this is what lenders do. Same with mortgage brokers, rating agents, asset managers, etc … they do what they are paid to do.
If these people get paid a lot because they are enjoying a boom then, hey, what incentive is there for any of them to want to rock the boat? Starvation? Is starvation an incentive for any of them to want to rock the boat and put and end to a good thing they have going for them?
I doubt it. It may be the right thing for them to do but there is no chance that any of them were going to do it.
Charlie Munger: “Never underestimate the power of incentives”.
can someone give me a read on December 2016 S&P futures
flat?
mines busted
Stick with the data my friend…. stick with the data.
Falls Church, VA Housing Prices Crater 9% YoY
‘one housing bubble, that in the United States, created another one in China’
There was a housing bubble in China by at least 2005, and the government vowed to pop it. They didn’t of course.
‘in the form of ‘whatever it takes’ central bank intervention to prop up still foundering economies’
A couple of things here. Why are economies still foundering? We never needed a decade of global life support before. People adapted, debts were written off, new skills learned, etc.
‘‘whatever it takes’ central bank intervention’
Boy that rolls off the tongue pretty easy. But what does it mean? Build cities for which there’s no need? These cities were completely planned. At the time they were rationalized. Now we can see it was bunk.
‘With hindsight the warnings of a potential commodities crash were there for everyone to see. ..they were all too visible in the form of newly-built but eerily deserted housing complexes across China’s lesser cities’
And the roads to get there, trains too. Airports, malls, office building, theme parks. What ever it takes. Doesn’t anyone at these central banks think that somewhere in the world all this activity could have been directed toward a human need? This pollution was unnecessary? The land these mines were on could have been left in a natural state or used for farming?
What ever it takes. What’s the goal? S&P 2000? Houses in Florida a median of $300,000? OK, what then? What ever it takes seems kinda vague. One would think that we could have clear benchmarks for judging the success for such a mammoth undertaking, given how much is at stake.
But no. It’s la-de-dah! Another day in the life of a central banker. Unfettered with responsibility or restraint. Sure, commodities have crashed. Entire regions of the world will sink into recession or worse. Don’t look at Yellen or Bernanke. Blame it on the US housing bubble. Oh, they were in on that too.
Whatever government touches - it destroys.
In the “bad” old days:
Private banks used to make the vast majority of mortgages. If a loan went bad, the banks ate the loss on the loans. Bad loans? - bank management gets fired. A few too many bad loans and the bank goes bankrupt. Fraud or violating GAAP? Bank executives go to jail.
The system worked. Housing was very affordable. There was no flipping. There was not using your house as an ATM. Buying a house was serious business and the banks made damn sure that they were going to be paid back (20% downpayment, verify employment, tight loan lending standards, etc.)
And then government got involved. Accusing banks of racial discrimination, guaranteeing mortgages, allowing banks to become investment companies, using banks to buy votes, etc. And all the fraud that with it.
Why? To buy votes.
And no one cared that:
Government has destroyed affordable housing.
Government has destroyed affordable higher education.
Government has destroyed affordable health care.
Government creates a crisis to buy votes. Government solves the crisis with even more government to buy votes. When that doesn’t work, government needs even more government to solve the crisis to buy votes. And etc.
“We will tackle lending discrimination wherever it appears. No loan is exempt; no bank is immune. For those who thumb their nose at us, I promise vigorous enforcement.”
– Attorney General Janet Reno, 1995, with a number of bank lending discrimination settlements by having them lower credit standards as a sign of ‘fairness’
There is a reason why not ONE BANKER has gone to jail under the nearly eight years of the Obama Administration.
“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,”
– Eric Holder, 2013, the Obama Administration’s Attorney General of the United States
Another day in the life of a central banker is to serve their political masters (and this goes both ways) and get them the votes to stay in power.
Another day in the life of a central banker is to serve their political masters (and this goes both ways) and get them the votes to stay in power.
I think you got it backwards. It’ the bankers who are in charge, not the politicians, who are merely the bankers puppets.
And that’s acceptable to you.
It’s certainly acceptable to me.
Government has destroyed affordable housing.
Government has destroyed affordable higher education.
Government has destroyed affordable health care.
Don’t forget those fugg’n $30k+ autos and $50k+ pickups.
“Profit Margins Tumble To Lowest In Four Years”
http://www.zerohedge.com/news/2016-03-19/corporate-profit-margins-tumble-lowest-four-years-and-its-not-just-oils-fault
Collapsing demand as a result of grossly inflated prices has a tendency to result in this.
Remember…. Nothing accelerates the economy and creates jobs like falling prices to dramatically lower and more affordable levels. Nothing.