成人论坛

Don't forget Karl Denninger, Mish Shedlock, Elaine Meinel Sukis, Bill Bonner and the Oil Drum's Stoneleigh and Ilargi.

"Paul MasonSun 12 Oct 08, 02:00 PM" - I'm reading this at 12.14...

Paul - you a have time machine. Might come in handy in the next few days...

Some you win, some you lose. Reading Peston's blog, it seems increasingly full of posts blaming him for creating panic in the markets. The speed with which information flows in today's technological environment means that there will be times when you find yourself ahead of the game.

I can only speak personally. My view is that economics is a complex discipline and that journalists in that specialty do have to seek expert third party guidance as well as myriad sources. Since there is an obligation to exercise due diligence in the media and especially within the 成人论坛, the blogging mechanism being less constrained gives an opportunity for refreshing insight. In other words somewhere where you can 'flash the cajones' occasionally.

I might normally write this by email, but I think it deserves public comment. Some doubting Thomases made less than complimentary comments when Ms. Flanders departed. Since that time, I have seen what I consider to be journalism of distinction and quality. I congratulate you (and Robert Peston) for this and urge you to keep it up.

Firstly, let me say that, as far as the mainstream press is concerned, Paul Mason has provided the most lucid and accurate analysis of this whole situation as it has unfolded. Congrats to Newsnight for keeping him.

Secondly, I believe that actually (4a) is the fundamental answer as to why the mainstream press were not able to predict this event. Listening to the likes of Andrew Marr et al trying to grasp the basic concepts of global economics is both cringe worthy and extremely frustrating for a knowledgable audience member like myself.

With the speed at which markets now work (this is the first substantial financial crisis to happen since the emergence of the global internet) far exceeding those
of normally-reported geopolitical events the mainstream press simply to do not have the time to educate themselves, analyse and then post.

Oh, and finally, you've left off the best news blog throughout this whole crisis (however be warned, this is not for general public consumption. You do need a grasp of finance and economics to understand it):

I'm off to short the Forint!

#4 - nomerde

Short the forint? Have a care - some of us have to live here!

even though the people looking at the charts especially the bond market [the all seeing eye of the financial world] people knew merely pointing it out wasn't going to change anything.

Why?

As people like the swp look for 'those responsible' they will get so far then come up against little no rule fiefdoms embedded in financial institutions that no one really has control over. If this was a movie some of the players might have colourful friends called Rocco or Big Tony or Boris and there is the problem. The shadowlands of the international oligarch network.

journalists who get too close go missing in russia?

so the real players behind the crash will not be 'found' and anyone who is will be just the fall guy or a bit part functionary.


look at this Bloomberg story on aig.

....AIG hired Joseph St. Denis to audit the company's accounting,

St. Denis's written statement said he raised concern that certain credit-default swaps might be poised for losses, which wasn't supposed to be possible, and that financial products head Joseph Cassano blocked his input.

``I have deliberately excluded you from the valuation because I was concerned that you would pollute the process,'' Cassano allegedly told St. Denis...

[see AIG Former Auditor Warned About Derivative Valuation in 2007 ]

so people knew.

As for finding people 'responsible' forget it. It would be just going through the motions. When journalists end up in seaside bars drinking cocktails looking at sunsets?

Still if you fancy a break why not see if NN will pay for an in depth report from the Caymans Islands or some other sunny tax free haven? To walk among the yachts looking for a man with a white cat. I can hear the James Bond soundtrack now....

#5 - threnodio

Do you believe that it is through people like me shorting the Forint, that Hungary's economy will collapse?

Please don't believe the rubbish that is printed in the mainstream press. If shorting had not been banned for this period there wouldn't have been anywhere near the volatility we've seen in the past two weeks.

If you really do live in Hungary, get whatever cash you can lay your hands on and purchase retail gold in your local area (jewllery, not high grade - pawn shops can't tell the difference and you'll loose when you try to liquidate) or short dated uk/german/french government debt through a bank that specialises in custody services (immune from solvency issues).

The idea that individual journalists have a great effect on this crisis is as mad as the idea that butterflies cause hurricanes. There are much bigger forces at work. These forces are now working through into a depression which will last for a very long time. There is nothing we can do to stop it and all the measures governments are taking are designed to ameliorate the worst social outcomes.
If you heard Hazel Blears on the radio just now you'll notice that the one thing she emphasised over and over again was social cohesion and solidarity, community and sticking together. Anyone for air-raid shelters in the garden?

Not enough Cassandras with cojones?

first I think (without checking) the curse was Cassandra would not be believed.

Therefore it wouldn't matter how many Cassandras there were, they would not be believed.

I can only again refer you to this



At 拢250 billion in 2006, at 拢50 billion per year that is more or less, the amount the Gov has had to borrow to put into the UK system. 拢350 billion.

Have you any idea how much work went into a 拢50 billion per year buisness plan to have stopped the present situation from happening?

If the Gov had gone for it, the present situation would not have occured.

Why didn't Newsnight report on it in 2001? Had they done it may have pursuaded the Gov to do the proper thing, and we wouldn't have had this situation.

It took big cojones to propose and successfully implement that project if the Gov had gone for it.

Why didn't Newsnight get 7 years ahead of the curve and report on it?

Of course the Cassandra curse.

It's only by dint of biology that Gillian Tett doesn't have cojones, but she more than saw this coming. It was because of reading her, that I knew it was coming in April 2007.

I think the problem here is that you have to inuit a great deal, you have to trust your own judgement, since the signal to noise gets ever higher in times of stress, and vested interest have a larger share of the spectrum. It takes years for people to understand what they're being told. Simply avoiding CNBC is a start.

I think you really need to know the background of the anchors and newscasters, in such situations, who studied economics and who didn't. Business or finance is not the same thing. I think economics itself is fairly opaque, and hence asking the right questions is hard.

I have to say that online at least you come across as well read and opinionated. If only you can get Ms Matilis to ask Gillian Tett decent questions instead of the tired old men.

Looks like your cock's wrong too btw :)

That should have "clock" in my last comment, you may want to edit that. Sorry.

#7 - nomerde

I really do live here, I was being ironic and no, I don't believe that for a moment. As to advice, thanks but we kind of figured that out for ourselves :-)

Didn鈥檛 See It Coming

Various commentators and economists did.

Back in 2002 / 2003, when the housing market took off, there was debate about the ratio of the average house price to average earnings going above its long term trend of about 3.5. This resulted in a conviction that because of low interest rates people could afford to borrow more capital. In late 2007, this ratio hit 7. In other words houses are twice what they should be if the 3.5 ratio is the correct one.

What people totally forgot to take note of was low inflation. The real interest rate to consider is the mathematical relationship between inflation and interest rates. That did not change. With high inflation (and rising earnings) it is inflation that repays the capital on a 25 year mortgage. With low inflation we should be borrowing less capital, not more. This off sets the extra capital we can borrow if interests are low. If you like, there was a shift in the burden on mortgages from one of meeting high interest payments to one of repaying the capital, in a low inflation environment.

Oh dear. Just a slight error of judgement.

This was then compounded by remortgaging and equity withdrawals on a massive scale.

Anyone with a mortgage over say 拢100,000 has no chance of repaying that capital, without prolonged, high, inflation, or prolonged very low interest rates, 2 to 3 percent, maybe lower. But now the banks are bust, they are increasing their profit margins on mortgages back to base rate plus 2 or more percent. It will require regulation or full state ownership to force mortgage lenders to pas on base rate cuts. It looks like we are about there.

One people learn a bit of maths, regulation will not allow mortgages of over 3.5 times earnings. Then house prices will halve at least. Millions will be in negative equity. And that鈥檚 assuming they鈥檒l still be in work.

Nationalisation of big chunks of the housing stock is next on the cards. Back to being government tenants instead of council tenants.

When that happens, don鈥檛 say we didn鈥檛 see it coming. Look very carefully, see it in the line above this one. Given that the mortgage books of Northern Rock and Bradford and Bingley are nationalised, nationalising big chunks of the housing stock is not a big jump. As Paul says, HBOS is as good as bust itself (the Halifax), and the govt looks like taking a majority shareholding. The country will be paying mortgages to the government.

Another piece of maths people need to learn. What is the long run trend rate of inflation? What is the long run trend rate in real growth in GDP? You will find both are between 2.5 and 3. A bit of variance, depending on the dates its calculated between. To a mathematician, the number e screams at you. It鈥檚 a bit like pi. A naturally occurring number, the exponential growth constant. The trouble is, we try to manipulate economies to attempt to grow too quickly, at above this rate. By trying to get rich too quick, we end up bust.

We didn鈥檛 see it coming?

Of course you didn鈥檛.

We have a mathematically illiterate population. An illiteracy which extends all the way to the top.

Surely, financial and economic journalists have an academic background in maths and economics?

The answer is obviously no. Just as the maths teachers we鈥檝e had in the last twenty years, have no background in maths.

Will it happen again?
Yes.
Yes.
Yes.

Until we understand maths.

But what we need now is action.

Interest rates as close to zero as possible. Regulation of the mortgage market. Fast.
Credit default swaps. All declared null and void. Get real. You鈥檒l bust insurance companies, their creditors and shareholders, who are other banks and pension funds.

The problem is insolvency of private households. The bad debt on mortgages is the root. If people can keep up their mortgage payments, loans get paid off, the pressure on banks balance sheets eases, and the hopefully the banks don鈥檛 go under. And yes I think we鈥檒l need a bit of inflation. What worries me is the prospect of deflation. If so, there鈥檚 no hope.

Otherwise, it鈥檚 my Robin Hood suggestion, which is absurd, but makes kind of sense. (see Friday)

@Praxis22 - Good to see your typos aren't just resigned to AV ;-)

#14

@nomerde - Firefox handles spelling, it's the proof reading I have trouble with. Post in haste, repent at leisure :)

I think deflation is now a foregone conclusion SmithWilcox. Japan got there over a decade ago. Sianara Sweetheart!

Stop making excuses, Paul.

Public media should employ people with some rootsy understanding, and values that go beyond what Daddy's shares are worth today.

Private schools inculcate a value system that can be abreviated to 'me, me, me'. That's what you buy with private education -'I'm getting something others aren't'; that and the associated training in how to look down on everyone else.

You have to admit it fits remarkably well with the ethos of 'the market'.

As with religion, it is hard for people to ever see round the edges of such core values.

Its easy to pick the private school nins in the 成人论坛, and it is most of them.

A posh accent doesn't make up for anything, but that's what we get for our license money at lot of the time.

So far the most radical solution, and possible the one that has the best chance of making us avoid a depression (taking direct from FT Alphaville).


-------------------------------------------->

The United States is now, in some very general sense, bankrupt

First take a deep breath, and recall President Franklin Roosevelt鈥檚 wise advice that there is nothing to fear but fear itself.

Then let鈥檚 admit something painful: The United States is bankrupt, in the sense that it鈥檚 assets (housing stock, corporations and cash flow, plant and machinery) are now worth much less than its liabilities (in the form of mortgage-backed securities, other debt and loan instruments). In particular, large parts of the housing stock are now worth much less than the owners paid for them, and less than the outstanding value of the mortgages, or the collateralised bonds that have been issued against them.

US house prices have already fallen around 20% from their peak according to the Case-Shiller index of repeat home sales in 20 metropolitan areas, and there is little doubt they will now fall further, perhaps another 10% or more, as the credit crisis works its way through the real economy, raising unemployment, depressing incomes, and making refinancing increasing difficult. Even after current and prospective price falls, US households still have considerable NET equity in their homes.

By the end of H1 2008, homeowners still held about $8.7 trillion worth of net equity after adjusting for mortgages, according to the Federal Reserve鈥檚 Flow of Funds Accounts (Table B100 line 50). Households real estate assets were valued at $19.429 trillion while they had borrowed $10.639 trillion against them. But net equity had already fallen -$1.135 trillion (-11.4%) from its peak in Q1 2007, when it stood at $9.924 trillion, and the equity cushion will continue to shrink as home prices fall while the debts secured against them remain unchanged.

The situation is far worse than this net equity figure implies. A significant proportion of households will have paid off their mortgage entirely and are living in homes with substantial 100% equity. If we look at just that subset of homes which are still subject to a mortgage, the net equity in THESE properties is far lower, shrinking fast, and might even be negative, especially if home prices continue to fall another 10-20%.

There are no separate figures on net equity in the subset of homes against which the mortgage debt and ultimately the bonds are secured. But let鈥檚 assume 25% of US households live in properties with no mortgage (typically retired families) and that the value of their homes is typical of the housing stock as a whole. That leaves the mortgaged stock worth 75% of the total, so about $14.571 trillion, against which at the end of H1 2008 there was $10.639 trillion worth of mortgages, leaving net equity of just $3.932 trillion in these homes at end H1.

Home prices have fallen further since then, so net equity is already lower than this, probably by around $300-400 billion, if the recent decline in net equity values per quarter is typical. Assuming another 10-20% decline in home prices from current levels as the economy worsens, most of the net equity cushion behind the mortgage market will have evaporated.

The debt secured on half or more US homes will be worth more than the home itself, with little or no prospect of a quick rebound in housing values to rebuild positive equity. In the circumstances, many households may conclude that it is rational to walk away rather than pay over-the-odds for an asset the price of which has no realistic chance of regaining its former value in the short to medium term. The resulting wave of repossessions would only depress prices further.

So while households might still technically have some equity left in their home, from a collateral perspective, after applying an appropriate haircut, the mortgages are probably worth more than the houses against which they are secured. In that sense, the US housing market and mortgage industry is now bankrupt.

The collective liabilities (in the form of mortgage bonds) are worth far more than the proportion of the housing stock against which they are secured, and the situation looks set to persist or worsen.

The situation is less extreme in commercial property, consumer loans, and other forms of bank lending, but equity coverage there is shrinking rapidly too, as corporate profits weaken, the economy falters and collateral values fall. The US government via the Treasury and the Federal Reserve System have tried to prop up the banking system. But with $10 trillion worth of home mortgages, $2.5 trillion worth of commercial mortgages, $2.5 trillion worth of consumer credit, $3.7 trillion worth of trade credit, and $1.5 trillion worth of security credit, much of it held through the banks or mortgage-pools, the government cannot assume or even most of these debts.

Federal revenues amount to only $2.567 trillion per year, or just $1.932 trillion per year if taxes earmarked for Social Security and Medicare are excluded. The government also has $9.6 trillion of its own debts to fund, with another $600 billion or so already added to that to cover the costs of the bailout and lending operations so far. The United States as a whole has $17.639 trillion worth of overseas assets. But it owes $20.081 trillion to foreigners.

In this context, the country鈥檚 now-derated assets are probably worth less than its collected liabilities (both internally and internationally). The United States is now, in some very general sense, bankrupt.

Millions of Americans and foreigners now own debt and other securities which are not worth their face value, and which are not likely to be worth their face value under many plausible states of the world in future. But as millions of Americans and foreigners discover every year, bankruptcy need not be the end.

The normal process for resolving bankruptcies is for a court to ascertain the value of the debtor鈥檚 assets, and then mark down the claims of the creditors appropriately, according to some rule about how the losses and claims should be shared out. As part of a full and final settlement, creditors are forced to abandon the full nominal value of their claims in return for recovering at least a proportion of them. Recovering something is better than recovering nothing, and bankruptcy may protect the collective value of the assets better than a forced uncontrolled liquidation.

Thinking about the United States, or at least its mortgage market, as insolvent helps identify the way to resolve the crisis. Just as a bankrupt individual or company can have their debts restructured by the court, and creditors鈥� claims can be modified, so the US mortgage market needs comprehensive restructuring.

Much of the discussion so far has framed the US financial crisis in terms of 鈥渓iquidity鈥� rather than 鈥渟olvency鈥�. The assumption is that the problem is just that banks are not willing to trade with one another and that pouring liquidity into the system will solve the problem. But hundreds of billions have been poured into the system with no discernable effect. I would argue that the problem is now one of solvency rather than liquidity. The problem is not that markets are not liquid, but that the majority of banks and many other institutions are probably now insolvent or close to it, in the technical sense that if they were forced to write down all their assets (mortgages, bonds, loans and other advances) to probable recovery levels, their capital might be insufficient to absorb the losses. There is little wonder that insolvent institutions are reluctant to lend to one another.

The solution is a collective restructuring of the claims. The President and Congress could enact a law compulsorily reducing the face-value of all home mortgages by 20%, or even 30%. Mortgage-backed bonds would be adjusted accordingly. This would have the effect of recognising that US housing assets will probably have to be marked down 20-30% in the long term as the market settles at a new lower level.

It would put many households back into positive equity, and reduce the negative equity for others, improving the incentive to continue meeting monthly repayments. It would cut monthly repayments for all households and thus free up household spending to rebuild decimated pensions and avert a deep depression in economic activity.

It would inflict massive one-time losses on creditors 鈥� but most creditors realise they will never collect the full value of what they are owed (which is what is being reflected in the discounts at which mortgage securities are being marked even on a hold-to-maturity basis). It would also give creditors more certainty of collecting what remains (the pervasive uncertainty about the prospects for collection and residual collateral values is one reason why the mark-to-market firesale values have been at just 20-40 cents on the dollar).

Overseas creditors would no doubt be angry about the unilateral repudiation of a portion of the debt, with mutterings about the Bolsheviks. But by reducing teh value of the mortgage backed debt, the US government would reduce its need to fund wholesale takeovers of the domestic banking system and mortgage market, which would require a massive issuance of new Treasury bonds, probably at higher yields, therefore inflicting losses on the holders of existing Treasury bonds, and/or increasing the likelihood of default-by-devaluation.

China and other Asian governments as the biggest owners of US mortgage bonds totalling about $950 billion in their reserves would lose perhaps $200 billion from a restructuring. But it is unlikely that the bonds will ever regain their notional value in any event, so restructuring would simply recognise a loss that already exists. Moreover, restructuring the mortgage loans and bonds would reduce the risk of massive debt issuance, yield increases or default-by-devaluation cutting the value of the much larger pile of $1.5 trillion worth of US Treasury bonds that China and other Asian governments own in foreign exchange reserves.

Whether they like it or not, China and the other reserve accumulators are going to take a hit as a result of the crisis. If their mortgage-backed bonds are not written down, the alternative is that the US Treasury issues a huge pile of new debt, driving up yields and cutting the value of their existing stock of Treasuries; China and other countries have to continue accumulating even more US government paper 鈥� increasing their already high exchange rate exposure 鈥� or risk catastrophic losses on their current bond holdings; the US tries to devalue its way out of the problem, boosting exports but harming China鈥檚 exports; or the US tries to deflate its way out of the problem, cutting government spending to reduce borrowing requirements, but pushing the economy into a deep recession that would also cut imports and hence China鈥檚 growth rate.

The alternative for the foreign holders of mortgage backed paper is to accept a compulsory adjustment, try to collect the collateral behind impaired assets, or lend even more money to the US government to fund a bailout programme by buying even more US Treasuries.

There are no attractive options, but compulsory adjustment might not be the most unattractive option. If it worked, it might at least offer greater certainty. Already US Treasury bond yields are RISING as the market fears a future flood of issuance and holders scramble for cash. The other alternative, of course, is a big burst of inflation to erode the real value of the claims surreptitiously, and offer debtors relief.

Inflation has been the solution to widespread over-indebtedness in the past for many countries. But even if the Fed COULD generate inflation amid a contracting economy, that would simply expropriate creditors in a different fashion.

Rather than urging households to keep paying mortgages in order to service the notional value of mortgage bonds which will never be worth the value at which they were issued, it might be better to cut the value of the mortgages and bonds, impose a one-time loss on creditors, and start again.

While the idea of a bankruptcy/compulsory restructuring seems incredibly radical, it is no more than an extension of the idea proposed by Reagan-era Council of Economic Advisers (CEA) chief Martin Feldstein who has suggested allowing households to replace up to 20% of their mortgage debt with new federal government backed loans on the condition that (1) mortgage lenders write off the equivalent amount of their own loan; (2) households would be prohibited from adding to the debt secured against their home (through remortgaging or other equity release loans) until the federal loan was repaid; and (3) federal loans would be recourse loans (ie secured against the individual borrower and not just the home, so borrowers could not simply walk away) and would not be eligible for relief in the bankruptcy courts.

Compulsory restructuring would have other benefits. It would be equitable between borrowers, giving all borrowers relief in proportion to their existing loan position, rather than favouring only those who have borrowed more than they can pay, or having to find mechanisms to screen between those who genuinely cannot pay and those who simply choose not to pay.

Compulsory restructuring would also spread the losses across a wide range of debt holders. It might or might not respect the existing structuring within mortgage-backed tranches. But by spreading losses as widely as possible, it would reduce the hit to each individual institution and improve the survival rate among the lenders.

Rather than having some lenders receive 95-100 cents on the dollar (surviving) and others receiving nothing (pushing many of them into failure) if everyone took a moderate hit of 20% many fewer institutions might fail, increasing the prospect of system-wide stability being restored.

Compulsory restructuring WOULD interfere with property rights; it WOULD change the characteristics of mortgage borrowing forever; there WOULD always be restructuring risk in any loan granted in future, even if only a few basis points. But does anyone still doubt that the world will never be quite the same again after the turmoil of the last four weeks?

Moreover, successful stabilisations ALWAYS inflict losses on someone, usually spreading them across many groups.

Extreme financial instability persists (eg Germany鈥檚 hyperinflation) when all groups (creditors and debtors, wage earners, price setters, corporations, households, government, taxpayers and recipients of public money) try to press their claims in full. Stabilisation requires some or all of those claims to be written down 鈥� forever.

In the aftermath of a stabilisation after hyperinflation, several classes of assets (typically bank deposits) suffer a permanent loss of value, as the currency is stabilied at a lower level. Exchange rate crises are generally resolved by the semi-permanent loss of the (domestic currency) value for some classes of investors.

The current crisis has destroyed an enormous amount of economic value. Some, perhaps much of it, may have been illusory. Like Japan鈥檚 Nikkei-225 peaking at 39,000 and never recovering, and real estate values shrivelling, some of that wealth was an illusion and is gone for good. Stabilisation requires those losses to be recognised and absorbed.

The current situation clearly requires two things: (1) some quantification, however rough, of the MAGNITUDE of the losses; and (2) some losses-sharing mechanism to allocate those losses between borrowers, lenders, banks, shareholders, taxpayers and overseas investors.

Losses will overwhelm the capacity of banks and lenders to absorb them. So some losses will have to be transferred to taxpayers and probably overseas investors as well.

The current debate has obscured this by pretending that everyone can emerge whole. In particular, that the government can buy $700 billion worth of troubled assets, and lend huge sums to the banking system, and expect to get all or almost all of it back. That households can somehow repay all or most of what they still owe. And that the mortgages and bonds and other loans will somehow be mostly repaid. In other words that no one will have to bite the bullet. That seems completely implausible.

Quantification and loss-sharing is now needed. It might not be 鈥渇air鈥� and there would be a large element of rather rough justice. But past stabilisations have almost always involved a large measure of claims adjustment (which is a polite way of saying 鈥渨rite-offs鈥�) to succeed.

No one would claim that compulsory adjustment is an attractive option. But in the current circumstances I am not sure what a better one would be. The Fed and Treasury have tried 鈥渕uddling through鈥� with no success so far. Systemic stress has risen rather than fallen. As the scale of the Fed鈥檚 and Treasury鈥檚 own lending becomes more evident, their own credibility is starting to fray.

No doubt many observers would argue that compulsory restructuring is too difficult, or too radical. But the question is: what is the alternative?

Even if the markets can find some temporary stability, the massive overhang of mortgage debt will take years to work out and could fuel further problems down the line. Someone will have to take the bullet 鈥� the only question is who. Perhaps it is better that losses are widely if crudely shared that as many as possible survive.

This is a provocative piece, and meant to be. I would be interested to know what the less radical alternatives are.

John Kemp, economist

Alistair Cooke dripped his right wing propaganda every week for years and years. Such a position and portal would not have been left to chance.

Neither would the nature of the spiel coming out of top universities, which is why it generally supports the Party collusion that we are subject to. Ref - current crisis.

And then the academics get House of Lords seats.

Neat.

A further rationale for using this opportunity of huge Govt funds injection into the PFI bank of choice, RBS, to regain control of PFIs:

The original rationale given for PFI, the EU limitation on member state debt, has definitively exited, via the window.

As well as striking a blow for freedom, using the circumstances of the times to regain control of the dastardly PFI deals would, in very practical terms reduce debt long term and overall. I.e. it would be cheaper.

As of 2006, the UK Govt's aggregate forward commitments for 2006 to 2032 ( for paying for PFI projects) was 拢155 billion.

Surely we can save a few bob in the process of bailing out/taking over the bank that is lending the money to the PFI companies???

If we had a government that was so inclined..and if we havent - just what are they doing?? And for whom... with our money?

THE PRICE OF ONLY LOOKING UNDER THE LAMP-POST

Paul "There is much soul-searching in the Observer's media and business section about "Why did no financial journalists predict this?"

How about "they don't listen to the right people"?

Look back to Richard Herrnstein (1971;1973) or Young (1958), Murray and Herrnstein (1994) or and his work with which seeped out via ETS (but has been largely ignored)....Herrnstein and others did get death threats...

If you want to find relatively stable nations with good standards of living, look for mean IQs above 100 (e.g. Scandinavian countries or the Far East, although some of those have problems now because of their eager aoption of Liberal-Democracy). Alternatively, look at PISA data (IQ proxies). If you want to see degenerating nations, look for those with high levels of low-skilled immigration and differential/dysgenic fertility. There's nothing wrong with some immigration, but when it's coupled to low birth rates amongst the more educable through sending too many into higher education and work...and when what the PRC is doing is proscribed by the [Unsuitable/Broken URL removed by Moderator]Lisbon Treaty Charter of Fundamental Rights of the European Union, Article 3(2b), 'things can only get worse'. Many have been saying so for many years, and not that this was going to happen, but that it has been happening (whether Greenspan thought so or not). If one moves large numbers of low-skilled people from Africa and S. Asia to Europe or Hispanics into the USA, and if one increases the birth rate amongst the less gifted whilst reducing it amongst the more gifted, what does one expect other than a replication of the very conditions from which those immigrants migrated exacerbated by a swelling indigenous white/black underclass? Education is a matter of genetic selection, not environmental 'enrichment'. yet there is a tacit Marxist ideology which is de rigueur in our education system that people should be praised for doing well at school? Why? Do we praise people who have long legs when they do well at the high-jump? Why don't we encourage short people to be taller? It may sound absurd, but the truth is that we've known for decades that behaviour doesn't work the way that most people think, i.e that it's largely genetic and that our 'folk psychological' language is well past its sell-by date. As a consequence, 'No Child Left Behind' and 'Every Child Matters' are largely ill-conceived policies on both sides of the Atlantic.

Cassandra ('she who entangles men') was evidently a bit of a Lilith, hence Apollo's wrath through unrequited love. She definitely had no cojones!

#22 on the other hand....

switzerland's next

Paul,

Why did no financial journalists predict this?

It is a common mistake of those who work in a 'profession' to assume that they represent the zenith of skills in the field. This is particular true in the field of authorship. In truth they are self-selected by the group to continue and validate the existing prejudices of the group.

Unlike, for example, bridge-building, Journalists can get away, often for a lifetime, with simply being wrong. Bridge builders on the other hand are validated by their bridge not falling down - there is unfortunately no such validating test for 'journalists'!

To think that the question that you ask is even a mater of general curiosity shows, I humbly submit, an unreasonable and unjustifiable degree of arrogance. Your perceive your work as a 'profession' but I submit that the activity of a journalist is well described as a very little power without the slightest degree of responsibility!

PS "who is to blame" : the voters for electing the governments we have had for the last twenty something years, oh, and Margaret Thatcher who initially presented the erroneous economic philosophy!

#23 John from Hendon

Agree. My analogy was not bridge building but aircraft dropping out of the sky.

The other thing is looking at a subject from 'outside', an objective stance.

I look at it as an ecologist. Economics is a subsystem of the planetary ecological one.

Therefore see how it interfaces with that.

Also as Barrie Singleton put in a previous post living systems have been evolving for billions of years. Economic ones are struggling after a few hundred.

So compare a much more experienced system with a new one to see what the former knows more than the latter.

NOT MISSING COJONES - LACK OF MARBLES!

I have just watched Yvette Cooper's interview with Andrew Marr. Once more it is necessary to inspect a personality. I don't need to know anything about complex finance to now that Ms Cooper is blagging it.
Her choice of (and repetition of) key phrases, amounting to prattle, with top dressing of that Gordonesque: "It's the right thing to do" convinced me that this is not a person of knowledge and expertise.
Once more we are confronted with the truth that government is not enacted by competent individuals, but by acolytes and sycophants of deluded leaders. AND IN THIS FRAME OF REFERENCE WE APPROACH A CRISIS! Why do we have to accept this state of affairs? By the time Ms Cooper was seated on the sofa, she had abandoned prattle and was babbling - fishing frantically for 'Labour positives' against Global negatives. Would that she had some cojones - we could debag her, prior to tarring and feathering.

"Why did no financial journalists predict this?"

We were told that goldfish had no memory until a costly study proved otherwise....i could have saved the researchers a lot of time, effort and money by giving them the answer they were seeking - the cost would have been a 10pence phone call.
Yes, Goldie does have a memory.

Jurnos are like fish behavioral scientists, they don't live in the real world but need to validate their existence by making noises in an authoritative manner. We on the other hand, had forseen the future using a simple method of logic with knowledge, experience and a good grasp of the human condition. We may watch newsnight and read the papers to gleem whats happening in the world but often-times, we are way ahead of you, we also read between the lines of what we are told by the Journalistic profession. Many of us predicted the riots of 2001 for example, years before the news media got wind of troubles ahead in our northern towns. We predict future problems and then the news media plays catch-up with the inevitable unfolding story...happens every time- well almost.

I am no economist ( how often have we heard that recently) but it doesn't take much brain power to know that the more a bank lends.. the greater the risks - and the constantly lowered criteria used in handing out monies " have you got a pulse?..." this is base-level stuff but thats all you need to know when you come (hopefully) to the conclusion that this was always going to end in tears. Please tell me you saw this coming!!

Gordon Brown always talked up the British economy.. growth up 1 percent or whatever from the previous year and all the while personal debt reached a trillion just a few yrs back and has been steadily rising ever since-well up until the Northern rock scare and subsequent nationalisation.
Gordon is playing the egoed saviour in this mess at present but lets not forget who was chancellor for nine years...no! we ain't forgotten that recent historical nuggut.
The US banks were giving mortgages/ loans to people who did not even have an income for goodness sake. The often trotted 'US sub prime' was the road-hump-too-high that broke the chassis. If the 'Financial Journalists' couldn't see that bankers giving loans to "bankruptcy gurantees" and over a long period of time was a recipe for disaster... well maybe their bubble is a bit too thick for them to see out of.. but we, the non-jurnos, financial or otherwise ....we saw it coming years ago.

#27 Barrie Singleton

I have a letter her from Yvette Cooper when she was Minister for Housing and Planning. 19 March 2007

It is about the 拢50 billion per year project for the Dome. She basically abicates responsibility for it's loss to the National Audit Office.

So this year when Paxman asked her was there anything the Government could have done with regards to the economic situation, she wasn't exactly disclosing the full truth as known by her.

DILEMMA

Hi Celtic Lion. I am like the Donkey between the two piles of hay - and starving.
I can't decide whether to do a Guy Fawkes on Wesminster or Brussles. But I will definitely be there if we tar and feather Ms Cooper. A double bill with Caroline Flint perhaps?

Hello Barrie

#30

Caroline Flint?

Oh you mean Posh Spice

Your newsnight poll has a prearranged list of candidates and I do not see either journalists (with or without cojones) or economists among the suggested guilty parties.

It is pointless to say that some economists saw this coming: if economics had any pretensions to being source of true knowledge all economists could have seen it coming and averted the disaster. (And I should beware of upsetting 'Black Swan' Taleb who despises economics as a subject).

You say :'Not enough political journalists understand economics. '

What if the axioms at the base of economics are nonsense? We got rid of astrology eventually because it could not do as it claimed. Pseudo-mathematical gibberish has so far saved economics from destruction. It was Blythe Masters who cooked up all this nonsense about moving risk around in a closed system. Was she a politician?

What use is a so-called science which cannot even predict yesterday? Using standard models, economics does not work to predict. Not even to predict what has already happened.

Are these problems we facing not older then the present financial crisis? Is it not the system of Fractional Reserve Banking that is to blame? How come non of you so called economists raise and deal with the real issues concerning the current monetary system? Is it so hard to get an honest and in-depth look at a system that relies on people to be enslaved by debt? You all have a duty to correctly report on our monetary system as it effects everything. This crisis will simply serve to further improve the stranglehold that the IMF has on developing countries, that the Federal Reserve (Private Bank) has on the US and further the agenda of consolidating the banking system. Even us little people in the ghettos around the world are aware of this, are you rich city boys so naive? Its time to actually use your positions to make a positive difference and tell it like it is

BigShaolin (#33) See the Greenspan link elsewhere on commodity vs fiat money. The Randian 'Objectivists' and Austrian School economists tend to promote a return to the Gold Standard (even though not enough gold has ever been mined to even back dollars in US circulation at the current gold price) whilst also pushing for light touch regulation one that's achieved. Greenspan and other anti-statists thus present fiat money and FRB system as tools of Big Government, i.e the Welfare State (i.e Stalinism/National Socialism). When reading critics of FRB look to what they are thereby advocating, the consider Socialism as un-American.

I'm wary. a) It's USA election season, and b) in Europe, at least prima facie, the EU-26 was a bit miffed about Ireland.

But phew....we're all a bit safer now that everyone is pulling together....no rogue states....

thanks JadedJean for the responce, I will consider carefully what you have commented on. Just quickly - Is it not the reason there is not enough gold currently mined in the world to cover all the US dollars in circulation due to the falling value of the dollar and increase in inflation since 1913 as a direct result of fractional banking policy?

#6 - I suggest you read the new developments on AIG and Cassano: