Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

The sky ain't falling

by r------ Mon Nov 5th, 2007 at 05:48:51 PM EST

There's been much talk lately on these pages about how the state of real estate markets in the US, and the "meltdown" of mortgage-backed securities, are crises in American Capitalism. Jerome here on ET and bonddad over on dKos are sounding off on how crappy the US economy is performing, and how the US real estate meltdown is turning into a crisis of epic proportions.

Ever the contrarian, I'm not seeing this as the disaster that either make it out to be. Nor do I think the real scandal has anything to do with the actions of the big swinging dicks at Merrill Lynch, Countrywide or Citigroup.

Don't get me wrong, these guys are scumbags, and the weather outside is indeed frightful. But these guys have always been scumbags, that's why they run investment banks and not Secours Catholique. And there's no more a crisis in financial markets today than observed in the past, to wit, the US currency crisis in the 1970's, Black Wednesday, the S&L crisis in the US or the Japanese real-estate bubble of the '90's. Bad stuff, but no economic paradigm shifting event.

Promoted by Migeru


Now, some of the aforementioned events caused serious economic pain to the middle classes in the countries concerned (Japan, to some extent the S&L crisis), some didn't, at least not right away, not directly, or at least not in a way which could be indisputably ascribed to the event itself. So, while it's likely true that large swathes of the US middle class are currently waking up to the fact that they aren't worth as much as they thought they were, and likely won't become millionaires by sitting on their ever-appreciating-by-12%-a-year home, the real scandal has nothing to do with dubious and over-spun real estate markets, corrupt ratings agencies or investment banks overcome with the temptations of moral hazard.

No, the real scandal is that we don't start worrying about this stuff until it starts worrying the upper reaches of the middle class and their perceptions of their own deserved wealth.

I'll admit, two million foreclosures appears, on the face of things, worrisome. This is especially true for our dear media, when the face of those foreclosures is an upwardly mobile family in a fast-growing professional hub like the Bay Area of California, middle-class retirement communities in Florida or refugees from "high-tax" Southern California in once-booming Las Vegas. Our dear media's target demographic, in sum.

But let's be honest. The folks in question are hardly going to be out on the street; many end up simply going from zero-equity "home-ownership in name only" situation straight back to a more affordable rental situation when their mortgage re-sets to a level their income cannot support. Each person who learns he or she isn't as wealthy as they once thought is one less tool in the false-consciousness tool-kit of modern capitalist society.

On the other hand, there's been a real homelessness crisis in America for the better part of two decades, with every year two to three million real American people without regular, dependable real shelter, about a third of them single women and their children, and this was true well before any McMansion got repossessed. Don't forget, five hundred to seven hundred thousand foreclosures is the normal annual rate in the US. People lose their homes due to an illness, a job loss or natural disasters all the time . Out on the street, at a soup kitchen, in a homeless shelter, in some better temporary housing arrangement if they're lucky. It isn't until the comfortable middle class, the ones who've done "everything right" and don't "deserve it" start getting hit with auction notices that we start thinking there's a problem.

As for the facts of Capital's present predicament as regards us working stiffs, in reality there isn't much more of a crisis than there is as a matter of American course. Instability and insecurity are part and parcel of capitalism, in particular the anglo-american variant, and all we are seeing today is a bit more turbulence than that which usually obtains, with the turbulence starting to hit the more well-to-do (and thus the source of today's real concern).

In fact, in some ways the MBS model absorbs some of the detrimental effects better than the models used in the past. For instance, the bad assets are distributed throughout the financial system, via holding MBS themselves or via holding combinations of these with other debt instruments (so-called Collateralized Debt Obligations), held by not just pension funds, but also insurance companies (esp the longer duration stuff), and the recognition of the loss is spread across the economy much better than in '90's Japan or the S&L crisis, both of which required serious government intervention (and in the latter case, huge dollops of multi-generational moral hazard, the seeds of which we are current reaping the harvest, apparently). And don't forget that the top one percent of Americans possess 60% of financial assets, to give yourself an idea of the actual repartition of exposure to this particular set of shit-hole assets. I'd like to care that rich assholes just saw their position in Citibank shares get hammered, but I've been watching my sister try to get funding for enough beds at the battered woman's shelter she runs here in the US, or my brother working the state he lives in to get more public funding for food banks, to give a shit about that kind of thing.

Second, the rhetorical "where's the $100bn write-down," when speaking of 2M houses facing foreclosure, is a bit hyperbolic. I'm assuming the writer expects a $50K per foreclosed house loss on all of the two million households foreclosed, a figure cited by the Chicago Fed in studying foreclosures last year, initially developed by a big hitter in mortgage markets based here in the Twin Cities, GMAC RFC. But this assumes that those 2M houses haven't already been written off, which isn't the case. First, since approximately 500K-700K houses in the US go into foreclosure in a normal year (the real scandal, in truth), and yields on mortgage-backed securities are priced to reflect projected default rates (based, to be sure, on prior trends), presumably 25% to 35% of the problem was initially priced into the initial debt instrument issue already. Additionally, subsequent downgrades were presumably reflected in prior period statements when these parts of the portfolio were marked to market. (Of course, where things in fact get dicey is when there is no longer a liquid market for an issue, which is often the case for thinly traded instruments like CDOs even when there isn't an increased awareness of risk, but the fact that there isn't a market does not mean that there isn't a value. If might be 20 cents on the dollar, but there's likely a value, except in the longest durations of the junkiest shit, the riskier long-duration stuff that pension-fund managers, or alternatively, insurance companies often seek out).  

But even if the number is $100 billions, the follow-on question is, cetera paribus, so what? The collective value of mortages held on US real estate is approximately $10 trillions. $100 billions is a lot of money, but it represents 1% of the mortgage market. Further, there are 76 million mortgages in the US, and approximately 1% of these goes bad every year without the system going belly-up. If 1% won't break the system, what's to say 2-3% will? On the other hand, our handwringing on this issue risks masking the real crime, which isn't that we're up to 2-3% of mortgagees losing their home this year, but rather, that the economic system that produces this result always produces this result, even when things are going along supposedly swimmingly. And the ancillary crime is that nobody gives a shit when it's poor minorities and working class folks in Detroit losing their homes. Nope, people only really start paying attention when relatively affluent, aging US baby-boomers start feeling the pain of the oppressive economic system all Americans live under. And you can be relatively confident that when one of the two corporatist parties in the US do something about the issue, it will be a policy prescription geared in quite a limited fashion to only help as many middle-class boomers as is humanly possible. Oh, and someone will find a way to fund a casino and a new football stadium as well. You can't do something about housing without building a casino or a sports stadium, this is the real third rail of American politics, forget about social security.

And you can bet that no one will ever foreclose on a football stadium.

So if you think the sky is falling, think again. For many Americans, the sky fell long ago. We just didn't notice.

Display:
However, the whole US economy runs on credit, foreign credit. What if that blows up as consequence of the housing market slump?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Nov 5th, 2007 at 05:27:37 PM EST
I agree foreign credit will dry up. I on the other hand doubt very much it will be because of the housing market slump, at least not directly.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Mon Nov 5th, 2007 at 05:45:15 PM EST
[ Parent ]
And when foreign credit does dry up - which is due to the combination of fiscal and trade deficits, and the impossibility of raising interest rates to protect the dollar - the noise you will hear will be the sky falling.....

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Mon Nov 5th, 2007 at 06:12:08 PM EST
[ Parent ]
... participation in US mortgages in this asset bubble than previously ... precisely because of the collateralised debt obligations that created marketable financial assets from what was at one time likely to be either held by the originating bank to maturity, or sold off to Fannie Mae and Freddie Mac.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Nov 6th, 2007 at 11:01:37 AM EST
[ Parent ]
Cross-posted at the Orange Monster.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Mon Nov 5th, 2007 at 05:44:07 PM EST
And on the front page here.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Mon Nov 5th, 2007 at 05:48:09 PM EST
[ Parent ]
Damn. Thanks.

PS got your email this week-end, was meaning to respond today but got carried away with this thing.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon Nov 5th, 2007 at 05:54:24 PM EST
[ Parent ]
I figured that.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Mon Nov 5th, 2007 at 06:04:41 PM EST
[ Parent ]
Damn it, redstar.  Mostly, I can't stand the things you post.

But ... this diary is spot on!  

No, the real scandal is that we don't start worrying about this stuff until it starts worrying the upper reaches of the middle class and their perceptions of their own deserved wealth.

I'm not a religous person, but

AMEN.

And you can be relatively confident that when one of the two corporatist parties in the US do something about the issue, it will be a policy prescription geared in quite a limited fashion to only help as many middle-class boomers as is humanly possible.

And AMEN again.

That's what's been pissing me off about the economic crisis the whole time.  People are going to have to hold off on getting that 2nd HD TV for a while.  But the people who were hungry before are hungry now and will be hungry when it's over.  I can't begin to tell you how much this upsets me without going into a long list of profanities.  It's wrong.  It's immoral, inhumane and sick.  It's a sick society.  And fuck the economists and analysts and bankers and capitalists.  Seriously.  It's terrible that people are losing their houses.  Well, they should not have been giving loans to poor people anyway.  It's terrible that upper middle class can't afford the medical bills for the treatments the poor can't even get access to.  It's sad that people will experience a lower standard of living as a result of  credit card debt and gas prices.  This is a crisis.

The poor who can't get a credit card and have to take the bus?  Not so much.  

When the middle and upper classes suffer economically, something is wrong with the system.  When the poor suffer economically, something is wrong with them.  

When the middle and upper class benefit at the expense of the poor, it's downright patriotic.  Bootstraps, people!

When the upper upper class benefits at the expense of the upper/middle classes, it's criminal.  Government intervention is required!

I could really give a damn less about Citibank and the cost of a tank of gas.  Not while people are lining up around the block the street for a hot bowl of soup every Tuesday night.

You are right redstar. Yes you are.

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.

by poemless on Mon Nov 5th, 2007 at 05:46:03 PM EST
Thank you poemless.

Sorry you hate my stuff most of the time. For what it's worth, I rarely if ever hate your stuff. Unless it's you tearing me a (sometimes deserved) new one! ;)

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon Nov 5th, 2007 at 05:58:23 PM EST
[ Parent ]
I think we can both get very... adamant, at times.  

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.
by poemless on Mon Nov 5th, 2007 at 06:01:13 PM EST
[ Parent ]
DeAnder has some words on this below ;-)

I should take note also, though I have noticed my views evolving through reading all this stuff here - so there must be some flexibility still in play.

You can't be me, I'm taken

by Sven Triloqvist on Mon Nov 5th, 2007 at 06:12:52 PM EST
[ Parent ]
I second that!

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Nov 5th, 2007 at 06:15:06 PM EST
[ Parent ]
and I certainly agree with your main point. By the way - last statistic that I saw said 3.5 million homeless at present.

Howsomever - this current debacle is another counterclockwise circuit (northern hemisphere) around the toilet bowl. For reasons of overweening greed, new generations of greedies, and the neoliberal political imperative to maintain ideological ascendancy; the ruling class has to 'grow' their rewards, at the same time that they mask the failings of their system regarding the welfare of the lower class. (I lump everyone below the ruling class, even though, as you point out, the "middle class" generally gets their turn in the barrel last.) So - they keep these schemes coming along - new rubric, more seed money, big media campaign to hype the winners - to pull resources out of the latest failure and give them one more economic cycle from which they can pull their 'commission'. The problem is that, as in the toilet bowl, the speed of these cycles increases as we head for the drain. I think that, judging from the longevity of the Housing ATM cycle, we are approaching the point where the p-trap awaits.

Granted that you don't owe me, but what do you - you personally - do to alter the situation? Genuine question - no challenge implied.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Mon Nov 5th, 2007 at 06:24:03 PM EST
[ Parent ]
Was this question directed at me?

How do I personally alter the situation which is an outcome of an inherently unjust economic house of cards, I mean system?

Er, right now I'm just hanging out on the fringes of society, trying not to sucked into the game.  But I wouldn't rule out future participation in bloodless c o u p.  

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.

by poemless on Tue Nov 6th, 2007 at 02:31:16 PM EST
[ Parent ]
but it was addressed to redstar. Glad to have your response, too.

The main points with me are always "what is the goal?", and "how do we get there?".

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Tue Nov 6th, 2007 at 03:21:22 PM EST
[ Parent ]
I didn't get that either, same as poemless.

As for what I do, I do what I can. I work with my values, which once got me a quick ticket to oblivion at one employer, who was looking for analytical cover to outsource a whole department of 60 workers to India that I refused to give, strategically enough that one of my superiors lost a shitload of face and I essentially lost my place there, though that department didn't. Have the letter I got from them, when I resigned, framed. That's ok, never did read the free subscriptions I got from working there anyhow.

I'm also politically active, have volunteered plenty, especially before kids, been caucus chair more often than not at my Democratic (DFL here) precinct, when I go there rather than elsewhere (did the Green thing back in the '90's, more in the back seat than the front). Give some of them money, too, when I can, though I'd say there are more worthy places to donate to, and I do that as well, as I make a decent living. Not that volunteering for the Democratic party or giving them money is worth shit, in honesty, worthless fucks that they are by and large.

We all do what we can, I have four kids being raised correctly, imho that's probably enough right there, given your average lefty has, what, 0.6 kids?

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Nov 6th, 2007 at 03:34:18 PM EST
[ Parent ]
Thanks to both for answers. Raising 4 chilluns correctly is a full-time, socially responsible job without doubt.

paul spencer
by paul spencer (spencerinthegorge AT yahoo DOT com) on Tue Nov 6th, 2007 at 04:59:35 PM EST
[ Parent ]
Don't forget, five hundred to seven hundred foreclosures is the  normal  annual rate in the US.

...

First, since approximately 500K-700K houses in the US go into foreclosure in a normal year (the real scandal, in truth), and yields on mortgage-backed securities are priced to reflect projected default rates (based, to be sure, on prior trends), presumably 25% to 35% of the problem was initially priced into the initial debt instrument issue already.

So you mean five hundred to seven hundred thousand foreclosures in the first paragraph?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Mon Nov 5th, 2007 at 05:47:21 PM EST
Caught that, thanks!

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Mon Nov 5th, 2007 at 05:57:09 PM EST
[ Parent ]
This is true, and hysteria needs kindling. It is media visibility that fashions the audience and vice versa. But the majority (possibly uninformed) view feeds back on itself, just as the stock markets do. Neither one of them is necessarily based on real numbers, but perceptions.

But I still feel the US is itself going to suffer foreclosure.

You can't be me, I'm taken

by Sven Triloqvist on Mon Nov 5th, 2007 at 06:02:00 PM EST
But I still feel the US is itself going to suffer foreclosure.

Too true.

I think that within a pretty short time-scale, the US's ability to "pay its debts as and when due" - by presenting yet more bad dollar cheques to its creditors and expecting them to be accepted - will come into serious question.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Nov 5th, 2007 at 06:27:43 PM EST
[ Parent ]
yes good points redstar.

nothing is real to the us press until it hurts the six figure income demographic.

capitalism is built on a model of predation:  dog eat dog.  there's allegedly a line in the sand somewhere, where people above a certain income level don't prey on each other, where you're supposed to be "safe" 'cos you are respectable and conformant.  but in practise that line moves around, and as resources get tighter and enclosure gets more totalising, that line is moving upward and leaving chunks of the middle class behind, to face the very upsetting realisation that they are not "Us" after all but only Them -- clueless punters and prey to be fleeced by the biggest shills and thieves at the top.

some of this is addressed in Fear of Falling:  the inner life of the middle class...

middleclass people in the high-inequality nations desperately need to believe that they are inherently, innately different from "losers" -- the poor, the homeless, the landless, the indigenous, the struggling immigrant, the undocumented.  they need not to think "there but for the grace of God go I," because that acknowledgement -- that another person's risk and vulnerability is mirrored in our own, that we might well be in her shoes someday or she might well have been us were it not for dumb luck (the atheist's version of grace) -- is the Great Heresy of our time, heresy against the cult of the individual and the vulgar darwinism of fools.

when the predation line rises and leaves the respectable bourgeois exposed along with the "losers" on the same littered foreshore, to the same marauding gulls, it's an existentially devastating experience... and one which would result in an epiphany of class consciousness, were they not brainwashed from birth against any such event.

we see in our time a crisis of belief as well as resources:  how long will people hold onto an adamant ideology when reality contradicts it daily in more and more painful and immediate ways?

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Mon Nov 5th, 2007 at 06:02:53 PM EST
People above certain income level are indeed more cooperative, in effect. The balance of mutual services versus costs is pretty nice there. Only lower classes are fooled that there is nothing in the capitalistic life but brutal competition.

But now there is some phase change going on in modern capitalism. The scale of credit developments is giving rise to new qualitative relations. The new phase is not going to look pretty - one surely looking thing is growing imbalance of economic (and eventually social) power. It is like everyone is playing the "Monopoly" game, and now we are in the phase that people are starting to drop out. One difference is that unilateral win does not make sense, so people in play will start make arrangements (rather cooperative) to "settle" the game. Other difference is the risk that "loosers" won't leave quietly.  

The new phase of capitalism does not mean "the end of the world" - some will adopt very nicely even without trying, so to speak. But there might be a great hangover even for "winners" - they will probably get less than they ever thought.

The worst of mortgage crisis is still to come - I will check the sky in April :-]

by das monde on Mon Nov 5th, 2007 at 10:12:07 PM EST
[ Parent ]
It is like everyone is playing the "Monopoly" game, and now we are in the phase that people are starting to drop out.

I have been thinking along these lines in the past couple of days. And I don't like the look of it.

What happens when control of corporations is concentrated in relatively few hands? When the controllers are permitted to pass control to their heirs? When the corporations in question have revenue streams comparable with the GDP of sovereign countries?

We don't know. Yet. But methinks it won't be pretty. Equality under the law is gonna go, at the very least.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 5th, 2007 at 11:06:25 PM EST
[ Parent ]
why "is gonna" ? You mean, it's disappearance will be officialized?

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Mon Nov 5th, 2007 at 11:39:36 PM EST
[ Parent ]
Just read William Gibson.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Tue Nov 6th, 2007 at 03:18:19 AM EST
[ Parent ]
I think Gibson only works as a future if you ignore the environment.

What happens when stuff runs out, and cities flood?

Petere Hamilton has written about a possible future for the UK where a Mao-ist government collectivises everything and everyone after the flooding - which I think is more likely than a corporate dystopia, because corporations can only survive when energy is readily available and travel and transport are simple and relatively cheap.

Without easy international trade, corporations are meaningless. They're also a lot more brittle than they appear.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 6th, 2007 at 05:11:55 AM EST
[ Parent ]
When the corporations in question have revenue streams comparable with the GDP of sovereign countries

Jake, they already do, and have done for a very long time, right back to the Dutch East India Company , which was quite durable, and the South Sea Company and Mississippi Company, which were spectacular bubbles, and blew the English and French economies respectively out of the water.

My case is that big transnational "Joint Stock Limited Liability Companies" aka Corporations are obsolete complex and hierarchical dinosaurs, which will either collapse and die, or more likely, the cannier ones (eg IBM) will evolve into something else more networked and collaborative.

It's in this field of collaborative legal protocols and "enterprise models" or "legal and financial structures" that I've been working on Open Capital this past few years, since I realised that the UK government had inadvertently - and for entirely the wrong reasons - made Victorian-vintage "closed" corporations obsolete.

They did this in 2000/2001 by creating what I call an "Open" Corporation, in the shape of the UK Limited Liability Partnership ("LLP"), (which is not a partnership, despite the name)and the US LLC is a close enough cousin to use in the US for the same purpose.

I believe that those enterprises (by which I mean both "private" businesses, and "public" institutions) which do not use the risk and revenue sharing structures I observe emerging - eg "Capital Partnerships" and "Guarantee Societies"- will be at a disadvantage to those that do.

Classic "emergence"

The driver of all this is direct "peer to peer" connection. The models I am describing enable "dis-intermediated" and indeed cross-border consensual legal protocols I characterise as "legal XML".

We are quite close to the position where new tools based upon such "Semantic Web" protocols begin to spread "virally".

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Nov 6th, 2007 at 06:10:27 AM EST
[ Parent ]
What happens when control of corporations is concentrated in relatively few hands? When the controllers are permitted to pass control to their heirs?

It's called feudalism, and it aint pretty. Neither from a moral, efficiency or even aestethic point. Just think Paris Hilton.

I have been mulling what the optimal level of wage/income equality/inequality is. Any ideas?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Nov 6th, 2007 at 04:10:18 PM EST
[ Parent ]
Optimal for whom?
by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 6th, 2007 at 05:06:38 PM EST
[ Parent ]
That's a good follow-up question...

"The middle class" should be a reasonable if controversial answer.

I mean, you need both fairness, social mobility and rewards for entrepeneurs and people who want to study and work hard.

Without losing sight of the veil of whatever Rawls called it.

A hugely complex issue, permeating everything we discuss here.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Nov 6th, 2007 at 06:04:12 PM EST
[ Parent ]
social mobility

isn't social mobility one of those growth myths though?  if everyone is upwardly mobile, then who picks the fruit, who sweeps the streets, who washes the floors?

the technotopian answer to that is "robots of course", whicm merely means substituting energy slaves for human slaves.  and energy is now an increasingly scarce resource, alont with enojgh other resources that we know "social mobility" cannot continue to mean "aspiring to live like ozzie and harriet" let alone paris hilton.

why should rewards only go to inventors and entrepreneurs and similar [mho] growth fantasists?  why should not rewards go to good stewards of land, producers of good food and high quality durable goods?  or even to people who keep the streets clean or fix bike tyres or cook a magnificent blintz?

for people who like to study, isn't studying a reward in itself?  do they also need to be bribed with positional goodies galore?  surely the reward of studiousness is to be let loose in a library:  the maintenance of a library being a net-positive benefit to everyone instead of a privatised position good to reward only the elite few deemed worthy.

and so on.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Tue Nov 6th, 2007 at 06:41:25 PM EST
[ Parent ]
picks brain up off floor...

 how long will people hold onto an adamant ideology when reality contradicts it daily in more and more painful and immediate ways?

how long is a rubber band?

the metaphor of torture, one we are being asked daily to contemplate, leaps out of this...

it's like the media is a voyeur at a torture session, and we are invited to draw lots on how long can folks endure sweepstakes, complicitly staring along too...

how long can gazans get hammered before they roll over and get that they are subhumans and don't deserve anything?

how long can we see our fellow humans acting out without something snapping inside ourselves?

how long can cognitive dissonance be the status quo?

i think the root bitterness is found in the childbirth question...

we discipline ourselves not to have kids, or have few, and we resent the fact that the third world is out-reproducing us. now, they caddy on our golf courses, pretty soon they'll want to build shanty towns on them!

we 'get ahead' and want our way to go on forever....inside the gated communities, don't care how many guards and armies it takes to defend us.

we expect and feel entitled to a colonial viewpoint, where coolies do the dirty stuff and serve us mint juleps on the terrace.

we are afraid, because we know we've been living on the backs of the poor, but we are terrified we've lost the skills to work hard, while taking that cushy job in uncle's insurance firm.

oh i know it's not conscious... but it eats away at the happiness they thought they could buy, it literally kills the natural joy of life, and their lives become a gilded sitcom, rotting from within.

pitiful...

as pitiful as the plight of the poor, in a different way.

and what about the middle class? (which i disparaged so much as a teenager, finding the values totally materialistic and moneygrubbing, the precursor to the positional consumerism we see as operant capitalist model today.)

what i failed to see was the benefits of education accorded to the emerging middle class...

the poor started work too early to get academic passe-partouts, and the rich never sweated it too hard in class, they knew that job in the family tea plantation, or dickie's recommendation for some cushy foreign office job was a given.

the middle class saw the sting of poverty too closely for comfort and whipped itself to ascend the greasy pole, by hook or by crook, while their baby boomer kids were studying history and civics, building an idealism that was too fuzzy to be concrete, but too tonic to be ignored.

so the middle class had (has) the incentive to push themselves, and the education to enable a global viewpoint.

take away the awful part of being a bourgeois, the part poets and beats railed against, the part that was too constipated or entrenched to 'get' the 60's, the part that made the sterile conformism of the ozzie and harriet era such a rebellious kick to try and upend, and what do you have?

our last best hope...the grown up children might not wear paisley or stargaze-with-bongos any more, but they have been exposed to the embryonic western 'enlightenment', they spent their halcyon days with whitman and emerson in their backpacks, and as long as they could, they dreamt big.

the poor have so few voices, the digital revolution is still a generation away, (if we're lucky,) it is rare to see great leaders coming up from their ranks, the whitefella media machine doesn't find them sexy enough to promote unless they are blingy rappers or sports heeerose.

the rich are silent, all the way to the bank, they buy pols to to the tiresome job of lying to a spun public why 2+2 =3, and why though we're in a 'boom', (gotta believe!!!), the crumbs are getting sparser, and the only thing that's tricking down is due to incontinence...

woo woo, it's the world cup...maybe britney with no panties....

largesse... the luxury of having enough time away from the plough for one's children to get that precious 'eddication'...

then what?

oh yeah, that's right....blog!

participate in intelligent discussions, realtime, worldwide...

use whatever privilege we were born into to dis- and remantle the operating system, with a lot of help from mother nature to help prove points that should have been compulsory viewing 40 years ago, but were already so hairy to contemplate, it drove millions off screaming into the night, and what almost became a playful upending and recoding of the rules we live by, instead became what we see today, an oncoming pitched battle between the haves' private armies, and their cousins behind the barrios.

but worldwide...

many times education strips us of conscience, as the sheer repetition of cultural superiority narratives condition us to conveniently overlook what society doesn't feel good seeing in the mirror.

to recover one's personal stake in group sanity entails looking hard at these myths, and so many here are helping me unwind them...

sorry for the long ramble...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Nov 6th, 2007 at 04:33:17 AM EST
[ Parent ]
by the clarity, the passion and the verbage here.  DeAnander, das monde and you are helping me reproduce a lot of neurons.  Thank you.

Our knowledge has surpassed our wisdom. -Charu Saxena.
by metavision on Thu Nov 8th, 2007 at 02:21:07 PM EST
[ Parent ]
why, thankee ma'am... you made my day!

thankyou too for all the 4's, your subtle encouragement has emboldened my already over-insistent urges to mouth off to strangers!

it's a pretty combustible combo of brains colliding here, the result falls between damn gripping and pleasantly relaxing... as you know, i'm almost as addicted as some of you to showing up for my window-onto-the-real-world.

happy neuron firing!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Nov 8th, 2007 at 10:38:15 PM EST
[ Parent ]
The golden rule of the MSM:


The economy = the top 1%

and all is clear.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Nov 6th, 2007 at 04:44:35 PM EST
[ Parent ]
absolutely.  in fact it would be fun to make a Babelfish translator that translates wsj and ft frontpagers with a simple sed type substitution.

"the economy" = "the top 1 percent" or "the aristocracy"

"reform" = "droit de seigneur"

"free market" = melee

and so on.  they'd be far more fun to read and more accurate too!

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Tue Nov 6th, 2007 at 06:45:24 PM EST
[ Parent ]
Dontcha know there is no real poverty in the West ?!?
< /snark >

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Mon Nov 5th, 2007 at 06:16:52 PM EST
Well from that discussion I find it good to know that these foreclosures aren't going to result in homelessness

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Nov 5th, 2007 at 06:31:39 PM EST
[ Parent ]
Linca, why do you hate freedom?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Mon Nov 5th, 2007 at 06:47:05 PM EST
[ Parent ]
Well, being free to ignore the plight of the ones labelled as "Other" is one of the freedoms prevalent in all hierarchised societies, for sure

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Mon Nov 5th, 2007 at 07:14:03 PM EST
[ Parent ]
European Tribune - The sky ain't falling
I'm assuming the writer expects a $50K per foreclosed house loss on all of the two million households foreclosed,

The foreclosures are not the entire problem. There are two sides to it.

1. There will be money lost, and there will also be homelessness, as a result of foreclosures. It's wrong to say that sub-prime is a middle class phenomenon, because it really isn't. The ingredients are:

i. Buy to let speculation. This is the middle class part.

ii. Debt-funded lifestyle. This is also middle class in part, but not wholly. There's some middle ground - it's a mix of people who are trying to capitalise on the bubble, but it also includes people who have been pushed into debt because of stagnant wages and rising costs, and for whom the only way out of to the trap is a remortgage.  

iii. Low-income house buyers. This is very much not a middle class issue, and it's also where the core of the sub-prime market is. It is not, at all, easy to quantify the loss in this group, because many of the houses that are being held as security are in fact close to worthless - falling apart, and in poor areas. So a $50k loss could easily be optimistic.

2. The rest of the problem is the various leveraged, bundled, packaged, shrink-wrapped, strategic, multiply-traded instruments that are based on the mortgages. The markets have - as usual - over-reacted and decided these are worthless. This means that irrespective of the underlying mortgage-based value - in the sense of possible income from foreclosures - these instruments are being treated as worthless paper.

Some estimates are putting the value of this paper at £1 trillion - which is a little harder to swallow than $100 billion.

So this is another example of the fantasy electronic economy decoupling from the physical one. The underlying reality doesn't matter. What matters is what people believe. In the case of these instruments, they believe they're worthless, and it's going to take a lot of persuasion to convince them otherwise.

Since many banks have apparently been relying on these instruments to puff up their balance sheets and/or to fund their turnover, this is not good.

And in the meantime, the funny money is like sand in a gearbox - nothing much is going to move until it's cleaned out.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Nov 5th, 2007 at 06:25:03 PM EST
Also, not all CDO's are based on mortgage ; indeed, a minority of them are. But bankers have found out their valuation models don't work, so the market is dead not only for MBS but for many others too. Probably still more value stored in those...

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Mon Nov 5th, 2007 at 06:29:37 PM EST
[ Parent ]
But Redstar is right to point out the media focus for the msm demographic. It is not that the middle class is involved now, it is that the middle class expects it to affect them in the future. And their concerns are reflected in the msm.

However it also could be true that their concerns are too temperate - that they haven't realised yet how all consuming this debt crisis might turn out to be.

I suppose that will only become clear when we (and the rest of the middle class) know the full extent of the supposed value of this paper. But someone is certainly doing their sums somewhere.

You can't be me, I'm taken

by Sven Triloqvist on Mon Nov 5th, 2007 at 06:39:57 PM EST
[ Parent ]
The 3 points of the first side seem to be very interrelated. Profitable speculation requires leverage (debt), especially when low-incomers and everyone else use debt to enter the market or expand there. As the real estate prices shoot up while most wages stagnate, only the wealthy can afford to participate in the market without borrowing. At first, the middle class has to pay more for real estate because of credit-stimulated demand growth; then they have to borrow just to keep the middle class appearance in the market. (In the Baltic states, the difference between the apparent middle class and "have-nots" in the last years was basically credit availability and utilization.)

As for the second side, I do not think that the markets "over-reacted" regarding the mortgage-related papers. For insiders, the crisis is probably looming so large that they cannot afford to reveal it immediately. Only two months after the August it reemerged that bad CDOs are indeed abound. (Stock market still look greedy rather than fearful, beating their records.) The instruments are considered as worthless for trade, since any trade idea is effectively a moral hazard to the whole system. But everyone will quietly take any equity from what their papers they have.

by das monde on Mon Nov 5th, 2007 at 09:45:45 PM EST
[ Parent ]
First, I sure didn't mean to say there wasn't an issue with working class people getting the shaft, far from it. I was pretty explicit in pointing out, I think, that the more vulnerable among us not only are getting the shaft now, but have been getting it for a couple of decades. It isn't until now that the media, and therefore your average American bidochon, is starting to be conscious of the phenomenon and this only because wealthier people are starting to have to pay the piper. When it was just the poor getting fucked, like five or ten years ago, no one gave a shit. Now that Ward and June Cleaver are feeling the heat, it's another story.

More specifically, I would point out that the simple way the issue is framed speaks to just how fucked up the political discourse in America really is, and how utterly top-weighted (ie, like a Democratic bailout of Citi now that Rubin is at the helm)  all possibly apparent policy prescriptions are likely to be because of this framing.

For instance, Jerome is speaking about second mortgages and securitizations thereof, which are in all likelihood more unsecured than secured as a practical matter. Now, the back story to this is that the reason many people go into second mortages with loan to val figures approaching 100% is because they got into serious financial distress.

The top reasons for this distress are medical expenses, job loss or a spousal (usually a husband) abandonment. These three factors represent more than 3/4 of all bankruptcies in the US until bankruptcy "reform," medical expenses more than half to it alone. Does the foreclosure crisis start people to talk about proper healthcare reform, unemployment insurance, income support for working poor single parents or childcare? I think you know the answer to this, which goes straight to the heart of the framing of the issue.

But back to the history here. Enter bankruptcy reform. The Democrats got together with the Republicans to make it harder for folks to discharge debt. Again, no counterparty, no healthcare reform with equitable, bankruptcy-free access to health services, no real unemployment insurance, no family or child or housing allocations, no substantive access to affordable or state-provided childcare for single mothers. Democrats don't do those things anymore, Republicans (mostly) never did. What you do get is just good-old fashioned debtor's prison style legistlation, bipartisan over here.

So what's a middle-class person, down on their luck and on the way down the SES ladder. to do? Liar loans, 100% loan to val loans, get the cash to pay the doctor for the last round of chemo so you can get the next one.  So I'm not convinced we're really looking at a massive increase in defaults driven by disadvantaged folks, and I'm guessing we're looking more at the formerly middle-classed no longer having the bankruptcy option, which while sad and in dire need of remedying, is sort of ironic, since the two parties they overwhelmingly vote for got together and made this all possible for them. So they voted overwhelmingly for "more and better" Democrats to get things fixed, and we'll all be damned if not a god-damned substantive thing has even come close to being even started as regards nearly every aspect of the problems I have just enumerated. With the execption of healthcare for children, no progress, not even a start, and certainly no linkages.

Second, the pratical. I'm not so sure everyone is convinced these instruments are worthless. I recall doing ABS consulting work 6-7 years back, some asset-backed securities that were having very similar issues as what many MBS issues are having now, doing it for the manufactured-housing equivalent of Countrywide, Conseco Finance, who couldn't sell their paper anymore due to both prepay and default issues, some existing tranches trading at 20 cents on the dollar, then not trading at all, company stuck with paper it couldn't sell anymore and running out of cash, accounting irregularities, SEC investigations, the whole nine lot.

Were the assets worthless? Warren Buffett didn't think so, nor Lehman Bros., nor GE Capital who eventually bought up all the paper and the servicing rights.

Beyond that, I think Linca covered the valuation issue.I would only add that a 2 trillion dollar problem  would represent fully 20% of the entire value of all mortages in the US, the majority of which are standard fare, 15- to 30-year fixed affairs with very low default rates. This is not to say the value-at-risk couldn't get that high, but if it did, we're talking a cascade of events, probably involving a severe, '30's style contraction, not out of the question but not in my book likely until these fools have invaded a few more countries. But by then, we'll have more to worry about than whether Ward and June Cleaver were able to hang on to their house.

 

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon Nov 5th, 2007 at 11:05:44 PM EST
[ Parent ]
I am far from a financial wizard, but isn't it kind of a classic move to engineer a panic, wait for everyone to get in a tizzy and downrate all their paper, then quietly buy up all the paper at a few pence on the pound thus acquiring the underlying real assets (land, houses, physical plant) for below whatever its rational market value would have been?

i.e. some patient long-term thinkers with liquid capital in hand may be acquiring a LOT of real estate thanks to this kerfuffle.  and when the dust settles, I will betcha more than a quarter that the consolidation of asset ownership -- in the US at least -- will have ratcheted upwards another notch.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Tue Nov 6th, 2007 at 02:43:13 AM EST
[ Parent ]
redstar:
Does the foreclosure crisis start people to talk about proper healthcare reform, unemployment insurance, income support for working poor single parents or childcare?

I agree, but the underlying problem is that politics is reactive rather than pro-active. I'm not sure if people on the average simply lack the cognitive skills to links effects to causes, or if they're not trained to think in those terms, or if the noise machine makes it impossible for them to think like that.

But whatever the reasons, the effects are clear - crises like these aren't noticed ahead of time, and are dealt with reactively.

It's one of the problems faced by progressives. We'll say 'Yes, but this is caused by that and if we change that the problem will go away.' And they say 'WTF are you talking about?' Because it makes no sense to them.

So pushing core social issues to solve core social problems is always an uphill struggle. I think Edwards seems to be doing some of that, so it's not all bad news. But it's always easier for the noise machine to make a lot of noise than for it to start being honest about causes, effects and means.

redstar:

Were the assets worthless? Warren Buffett didn't think so, nor Lehman Bros., nor GE Capital who eventually bought up all the paper and the servicing rights.

I'm sure this could be done again - in fact it's an obvious first step for everyone to sit down and work out what his paper might be worth in real terms. Rather than playing with bailout funds, it would be smarter to get everyone to go through an honest valuation process and then start looking for some interested firesale buyers.

But it's not going to happen for a while, because it's going to mean making a full public accounting statement of loss. And anyone who breaks ranks to do that before they're forced to by auditors (can auditors still be trusted?) is going to see their share price go into freefall.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 6th, 2007 at 05:34:31 AM EST
[ Parent ]
But it's not going to happen for a while, because it's going to mean making a full public accounting statement of loss. And anyone who breaks ranks to do that before they're forced to by auditors (can auditors still be trusted?) is going to see their share price go into freefall.
Some of them are doing it already, using the "Level 3" trick to give them plausible deniability.

As for the auditors, they probably have failed to exercise due diligence in the previous yearly audits, but this year I think they'll use the opportunity to make up for the PR disaster that the Enron crisis was. But still, when the auditors force them to recognize their losses the share price is going to fall anyway. I would be monitoring insider trading carefully.

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Tue Nov 6th, 2007 at 06:31:36 AM EST
[ Parent ]
Great diary.

Helluva write.

Agree 100%.

"When the abyss stares at me, it wets its pants." Brian Hopkins

by EricC on Mon Nov 5th, 2007 at 07:50:21 PM EST
I agree about the overblown hysteria, but perhaps the real fear is that there are so many people living on the edge of their financial resources that a small downturn in the economy, or a small increase in the price of oil, could make the situation even worse.
by asdf on Mon Nov 5th, 2007 at 10:09:42 PM EST
Agree with that too.

But it has always been that way here.

I guess they kill the country, they get to move the capital somewhere else.

Not like it hasn't been happening for thirty years.

"When the abyss stares at me, it wets its pants." Brian Hopkins

by EricC on Mon Nov 5th, 2007 at 10:29:02 PM EST
[ Parent ]
In Spain the house bubble finale will effect the working class.. basically int erms of jobs... Spain has a de facto zero rate of unemployment for males.. no male is wihtout job in spain and we had to import a lot of them from south america to cover the construction sector.

As the number of houses and projects underconstruction diminished a large part of the workforce was deleted (capitalism way), so fo rhte first time we could hav eunemployment in the male section if SPain doe snot produce jobs in other areas of the eocnomy... which we allhope now will happen once investing in housing is not hte only possibility (there has been no huge investment inanything else if you were a private entity).

SO the credit crucnch among banks will only affect very rich people ina first phase with some dislocation on the very poor maybee a slight increase of homeless as you indicate... and there might be some problems with the upper middle class and credit...

BUt I agree with you, the lower and middel class will not be specially affected if.. and only if the direct destruction of jobs in the construction and related sectors is compensated by other jobs in other services.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Tue Nov 6th, 2007 at 05:06:56 AM EST
Brilliant diary.  Good to see ya, redstar.

The truth of the matter is that the actual losses in housing are too small to cause any serious damage to the economy in a static world.  What we should be concerned about -- and really even this is a small concern long-term -- is the crash resulting in a contraction from people who really don't need to put a stop to their typical consumer routine, but who, in doing so, drag many others down.  The large majority of people who have been reasonably responsible, financially, during the credit flood.

What I find incredibly offensive in the press is the view that this is important because of the large number of people sucked in on it.  If a person lost her home at another time, -- as you mentioned, hundreds of thousands do every year -- the press wouldn't give a shit, and Washington would go on fighting about some other meaningless issue.  Lose your home in good times, and you're shit-out-of-luck.

And let's be clear:  These are millions of people who owned and lost, while 30% of the country can't own.  It only gets the attention of the powerbrokers when the upper-middle class is affected.  I'm a little -- okay, a lot -- tired of the pandering to that spoiled group, anyway, since they dominate our lives, but, with their idiocy now fully on display, I find this level of pandering disgusting.  And they'll get a bailout from the rest of us who have the sense to see the crash and wait.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue Nov 6th, 2007 at 05:08:44 AM EST
These are the same people who pollute my neighborhood with their enormous SUVs, all the while getting their panties in a twist over non-issues like our apparent invasion by the 104th Fighting Day-Laborers; or the great danger of extended train lines that might -- gasp! -- bring the Negroes into Suburbia (say it with me now: "The suspect is a black man"); or their brainless, lead-sucking kids playing violent video games.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Tue Nov 6th, 2007 at 07:36:21 AM EST
[ Parent ]
I was talking to some division manager for stocks at Goldman sacks yesterday, saying that I was puzzled at the theory that one couldn't beat the market. If it were true, I tried to imply, there would be way more big player in the sector. He just said that the theory said that was true over time, and that anyway some people are better than others.

At some point he said, ' anyway, over time, the market goes up, that's what we see historically. What matters really is household consumption'.

I just said that well, Japan's stock exchange still isn't half of what he used to be in the 1990's, twenty years later. We dropped that subject, and someone mentioned the average level of debt in the US... he said 'that certainly can't go on'.

'So how could stocks always go up if it can't go on?'

Silence.

I ask, how's the variation of the value of the dollar going to affect your job, and he replies with basic theory, 'well it's going to help export companies, etc'.
At that point I wondered if he knew how much change there has been on that front: the canadian dollar is now at par, the euro double value in 5 years. He seemed genuinely surprised.

About the canadian dollar, he said, 'that's funny, I thought that since their economy was so intertwined with ours, that the exchange rate wouldn't change too much'. I point out that a lot of the dollar's values comes from the trust in the US economy and government. 'They certainly lost that, he said'. Again silence.

The dots just don't connect. Information doesn't spread. They must have their noses on the handlebar, as we say in french. Can't see anything else...


Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine

by UnEstranAvecVueSurMer (holopherne ahem gmail) on Tue Nov 6th, 2007 at 08:39:10 AM EST
UnEstranAvecVueSurMer:

At that point I wondered if he knew how much change there has been on that front: the canadian dollar is now at par, the euro double value in 5 years. He seemed genuinely surprised.

Excellent post. It makes the point that these 'Masters of the Universe' are really just clueless sheep.

One unusually bright sheep devises a scheme to fleece the sheep in the other field, and they all trot along obediently, thinking, saying and doing the same things.

If no one points out there's a cliff in the way, they'll walk right off it with a surprised who-could-have-expected-that look.

I think we really do give these people far more respect than they're really due. There will always be exceptions, but en masse you can pretty much rely on them to be this clueless.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 6th, 2007 at 05:12:05 PM EST
[ Parent ]
The Canadian (and even more so the Australian) dollar is strengthened by high commodity prices. Dutsch disease.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 6th, 2007 at 06:07:55 PM EST
[ Parent ]
I'm not sure I get it. High commodity price is high natural resources price?

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine
by UnEstranAvecVueSurMer (holopherne ahem gmail) on Tue Nov 6th, 2007 at 07:38:15 PM EST
[ Parent ]
Yeah, that's what I meant.

Wrong word, sorry.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Nov 6th, 2007 at 08:27:05 PM EST
[ Parent ]
Ok thanks

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine
by UnEstranAvecVueSurMer (holopherne ahem gmail) on Tue Nov 6th, 2007 at 08:43:04 PM EST
[ Parent ]
I have to be fair. The manager I mentioned just sent me an email with a few articles about the subprime mortagage 'crisis'. He didn't comment much, but at least he was interested in finding out more.

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine
by UnEstranAvecVueSurMer (holopherne ahem gmail) on Tue Nov 6th, 2007 at 10:50:58 PM EST
[ Parent ]
You make the assumption that this will only matter to those whose mortgage is amongst those foreclosed. It won't: The lake that is the economy may be large and the rock relatively small, but the ripples will spread.

Now that credit is being squeezed, other people will find it harder to get a mortgage, especially in a deflating market. So all of those whose employment and health and pension are in the property market or construction will be affected.
Everybody will find it harder to get credit, which means that consumer confidence will be affected simply cos people won't be able to afford to go to the shops. so there will be a downturn in profit and spend (and employment) there.
Banks won't even lend to each other, let alone to anybody else, so companies will have problems with expansion, or even short-term credit issues, so employment will be affected there as well.

Now, just like the 1928 crash where FDR pointed out that, away from Wall St, high st america was carrying on regardless and just re-built America with public works, the amount of money invovled was small; just like now. But unlike 1928, america doesn't make anything anymore, it carried on because it reccled everybody else's money, but was basically an import nation. thanks to Iraq it's deeply in debt and can't begin to address that till it starts selling more than it buys. which with a crashing currency is gonna be a trick.

And another thing that's different. Oil ain't cheap anymore. And the modern American economy is highly addicted to it. Even at $100 a barrel, even at 3, 4, 5...whatever dollars a gallon at the pump, the economy simply has nowhere else to go in the short term.

So, actually I disagree that this a storm in a teacup. this ain't yer granpappy's recession. This is a 21st century Cat 5 demolition of everything you understand. Like the hurricane says to the coconut tree: hang on to your nuts, this ain't yer normal blow-job

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Tue Nov 6th, 2007 at 10:23:27 AM EST
Couple of observations. First, I'm not disagreeing with you that this may be the beginning of a long sucession of economic events which cause some serious pain and, who knows, ends up getting the Americans to get their act together. It's possible, but I unfortunately don't have a good crystal ball else I'd've hit the superfecta and quit my miserable fuckin' job by now. The lousy crystal ball I do have is saying it's actually pretty likely, but that the outcomes aren't likely to be very pretty. I'd hate to be Arab, or even Latin American. Chances are maybe 50/50 that things go really south, but who knows, worse economic events have happened and things ended up not as bad as previously thought...

As I said to Dodo, though, I don't think this particular financial crisis, the US sub-prime meltdown and attendant standard-fare neo-liberal ills (inherent conflicts of economic elite interest, utter lack of due diligence and lack of interest in ecnomic outcomes of the lesser of our brothers and sisters because "the market takes care of itself" and so forth), is going to be the catalyst. It's a symptom, the disease goes far deeper, and if and when the shit hits the fans, the middle class will really be howling, as they always do when they realize all of their paper net worth is gone. Ask any Argentine, or my understanding of '20's Germany or Hungary was that it wasn't easy to deal with the kind of fall-out long-term monetary mismanagement tends to create, either.

This being said, and while my bias in any primarily capitalist, neo-liberal economic regime is towards greater credit (if but for the simple reason that in such regimes, folks tend to be out on the street and jobless when credit gets tight), the real root of the problem is, for want of a more contemporary, less wooden catch-phrase, a systemic false consciousness which undergirds the whole values system which props up an economic regime which is, quite frankly (and de anander above has this exactly right) predatory. People think they have net worth because they notionally own a home, but the reality is quite other. Similarly, people think their retirement savings are worth something, but all it takes is a bout of some serious inflation, and they can probably kiss most of those goodbye. And so, much of what gives the vast middle classes comfort and allows them to vote overwhelmingly for neo-liberal politics (and this is as true in the UK as it is the US, I'm afraid) is a casual belief in their value within the system. Folks are vaguely aware that they are one major illness in the family away from being bankrupt, many people even know others who have endured this. But they persist in the belief that it's simply something which happens to someone else, and that the deceased family member, the cost of whose misfortune (adding insult to injury) has been loaded on the backs of the soon-to-be-bankrupt, has gone on to a better place, most likely by a very very busy Jesus' side. Religiosity, I am convinced, particularly of the (imho toxic) Calvinist stripe, explains much of why the US is the way it is (and I could tell you some stories if you like from personal experience).

In the present economic environment, this belief can only be perpetuated by ever greater extension of credit, extended credit being a stand-in for sovereign grace, or at least a sign thereof. I suspect we are beginning to see the end of this today, but it's hard to tell. Of course, falling from the grace of god...er...losing access to credit can only be the debtor's fault, so in and of itself, this won't change things; perhaps losing the roof over one's head might, but as noted in the thread, 3.5 million Americans will do so in any given year and this doesn't move the needle.

The reality, of course, is that very few really own much of anything at all, there's only an illusion of this. As for sovereign grace, that's a load of calvinist christian bullshit, but it's potent motivating stuff over here in America, and many people will continue to simply chalk up their misfortunate to God's will and beat themselves up for it, while others will get really nasty and chase down the Mexicans (we're starting to see this already) in addition to the already vilified Ay-rabs.

Of course, far better it would be to ensure housing for all, good quality, secure public housing for all who need it. To ensure egalitarian access to quality health care. To figure out how to get to gender equality by providing safe, free-to-affordable childcare. To guarantee a job and a pension for young and old. Do all of these things and you can actually do without the credit whose tightening we are now worrying about.

But this ain't gonna happen anytime soon in the US, just like it's gonna taked a lot of evolutionary experience to get pigs to grow the wings they'll need in order to fly. The Democratic party tried a couple decades to grow wings, but instead ended up growing an elephant's trunk, so there's really not much hope in the immediate future for better outcomes.

The important thing to note is that for those who live in poverty already in the US, and who have done so for the past few decades, it's unlikely that things will get any worse than they already are. That's really my central point. Those who will suffer will be the middle classes, and given their behavior over the past few decades, it's hard to argue that they don't deserve it. After all, it's what they've been asking for since at least 1972.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Nov 6th, 2007 at 11:40:18 AM EST
[ Parent ]
thanks for the detailed response, I now understand your underlying point much better than I did, and so agree with you more. Although I think the middle classes were lied to and misled by the media more than many would admit. the repugs were way ahead in changing the cultural perception of ideas even then.

However, I think in the UK we've always had an understanding of this. There is a persistent resentment at the poor provision of pensions from central government, simply because we've seen too many examples of pensions going to the wall.

People think they have net worth because they notionally own a home, but the reality is quite other. Similarly, people think their retirement savings are worth something, but all it takes is a bout of some serious inflation, and they can probably kiss most of those goodbye. And so, much of what gives the vast middle classes comfort and allows them to vote overwhelmingly for neo-liberal politics (and this is as true in the UK as it is the US, I'm afraid) is a casual belief in their value within the system.


keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Tue Nov 6th, 2007 at 11:54:05 AM EST
[ Parent ]
america doesn't make anything anymore

World's #3 exporter. Sweet zombie jesus, can we please stop making this statement.

you are the media you consume.

by MillMan (millguy at gmail) on Tue Nov 6th, 2007 at 12:10:53 PM EST
[ Parent ]
One question: what does the U.S. export nowadays? Corn, wheat, and apples; entertainment; software and computer chips; airplanes; logging and earthmoving equipment; weapons for sure. Other than that, I don't know.

The statement was hyperbole, but it doesn't feel like we make anything by comparison with the industrial pulse that I "enjoyed" in my career. Probably a good thing in many ways, including environmental impact; but there are several serious problems with our current industrial base: 1) the U.S. physical infrastructure is decrepit with no motivation to refurbish as a function of the production and the sales needs of a strong industrial base. 2) The vast quantity of imports (things that we do not make) means that the transportation costs - read fuel requirements - are enormous. 3) Productive activities often require and fund R&D - read innovation and discovery. 4) Real unemployment (not just the people receiving unemployment insurance) and poverty are substantially higher now due to decrease in domestic industries.

Of course, you are correct that we still make things in the U.S.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Tue Nov 6th, 2007 at 01:12:53 PM EST
[ Parent ]
We export a lot of high value items along with the agricultural products. The problem isn't the export dollar value, the problem is that the employment profile of the export industries won't support the middle class in the way it used to. That is absolutely a real problem, but that reality is masked by hyperbolic statements about how "the US no longer makes anything."

you are the media you consume.

by MillMan (millguy at gmail) on Tue Nov 6th, 2007 at 01:23:25 PM EST
[ Parent ]
We've had the discussion any number of times as it fits into the "anglo disease" thread that has been going here for some time. Increasing productivity reduces the need for labor. The resulting gains are being funneled upwards rather than redistributed to all. We should all be working 20 hours a week, instead, roughly half of us are working too much, half are underemployed, and too much of the profit is going straight to the top.

you are the media you consume.

by MillMan (millguy at gmail) on Tue Nov 6th, 2007 at 01:28:12 PM EST
[ Parent ]
CIA - The World Factbook -- United States
agricultural products (soybeans, fruit, corn) 9.2%, industrial supplies (organic chemicals) 26.8%, capital goods (transistors, aircraft, motor vehicle parts, computers, telecommunications equipment) 49.0%, consumer goods (automobiles, medicines) 15.0% (2003)


We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Tue Nov 6th, 2007 at 06:24:46 PM EST
[ Parent ]
Good catch, I didn't notice that. Of course the US still exports by the ton. Per capita, not so much, but all the same, and high-value add stuff as well, especially of the intellectual property variety.

The mismatch of the remunerated labor inputs to the types of goods and services being exported you well describe below. Alas, it is hard to export a haircut or a home improvement or a tax advisement or a retirement planning service, the sorts of personal services to which the US economy has shifted as manufacturing jobs no longer provide enough to maintain a secure family environment for most non-union workers. And despite all the talk about Rule Americana in the financial services world. I mean   the Brits still got that angle mostly tied down (no pun intended). Considering size, the Americans are pikers by comparison.

All the while the balance of payments situation in the US remains quite precarious, the one thing really going for it is technology. Unfortunately, because the US is entering one of its many historical asshole phases,
even that could soon be a thing of the past, as US technology multinationals like Microsoft just work their way around one of America's occasional phases of xenophobia and mass security hysteria. Not a good sign for future exports of services which can efficiently be exported.

The rest of the world has taken notice as well, not just Microsoft,it would appear. So despite the great deals you can still get a short place ride from Heathrow or a very short car ride from Windsor, less and less are coming here to take advantage. That certainly doesn't help, either.

I fully agree it is not helpful to engage in hyperbolic statements about the us not making anything anymore. It's simply not true. In any event, it should suffice to say it doesn't make enough to support the predatory lifestyle it has accustomed itself to, which is really already something to bemoan.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Nov 6th, 2007 at 02:26:07 PM EST
[ Parent ]
The problem is that US exports are barely half of its imports.



In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Nov 6th, 2007 at 05:30:16 PM EST
[ Parent ]
Bad news for China.

you are the media you consume.

by MillMan (millguy at gmail) on Tue Nov 6th, 2007 at 06:02:49 PM EST
[ Parent ]
Still, with the immense US domestic market, international trade is not as important to them as it is to us.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 6th, 2007 at 06:07:49 PM EST
[ Parent ]
Because the EU internal market is smaller than the US internal market?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Tue Nov 6th, 2007 at 06:20:41 PM EST
[ Parent ]
Damn, got me there.

I actually had never thought of it that way. But then us up north have been in the EU for only 12 years.

I guess that's what you get from hearing "remember you live in a tiny nation extremely dependent on exports" all your life.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Nov 6th, 2007 at 06:34:28 PM EST
[ Parent ]
What fraction of Swedish exports are to the rest of the EU?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Tue Nov 6th, 2007 at 06:37:44 PM EST
[ Parent ]
The biggest fraction, I'm sure.

The ranking should be something like this: Germany, UK, USA, Finland, Denmark, Norway.

Ok, it seems 75,3 % of exports go to Europe and 61,2 % go to the EU.

http://www.scb.se/templates/tableOrChart____142265.asp

The ranking is

  1. Germany 10,7 %
  2. Norway 9,1 %
  3. USA 7,9 %
  4. UK 7,3 %
  5. Denmark 7,3 %
  6. Finland 6,4 %
  7. Netherlands 5,1 %
  8. France 5,0 %
  9. Belgium 4,6 %
  10. Italy 3,2 %


Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 6th, 2007 at 06:49:46 PM EST
[ Parent ]

Export to the five most important export nations. Falling export to the US, stagnant export to the UK, and growing exports to everyone else.

Tyskland=Germany

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Nov 6th, 2007 at 06:58:24 PM EST
[ Parent ]


Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 6th, 2007 at 07:00:21 PM EST
[ Parent ]
Why have exports to Italy and France started flattening in 2006-2007?  Do exports to these three countries -- U.K., Italy, France -- have something in common?

Truth unfolds in time through a communal process.
by marco on Tue Nov 6th, 2007 at 07:55:46 PM EST
[ Parent ]
Ikea has saturated its market there ?

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Tue Nov 6th, 2007 at 09:45:01 PM EST
[ Parent ]
Yet, as I read through, cynical habit tells me the sky is falling and will continue to fall because the problem is the depth and the obscurity of crisis.  As the dealers are being less than honest and government figures are useless, it is impossible to put numbers to the problem, in human or material terms.  That's probably the biggest worry:  it is unquantifiable in a month by month basis and there are  parallels/mirrors in many countries.

Our knowledge has surpassed our wisdom. -Charu Saxena.
by metavision on Thu Nov 8th, 2007 at 02:30:32 PM EST


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]