Market crash: are we there yet ?

[sailhog]

[QUOTE=Valiente;378106]A guy with nothing to lose can still be horribly misguided, falsely premised and just flat-out wrong.

I offer this seamanlike observation: When do you ever bail out your boats just once? When is there ever just one bucket of water in your bilge? You usually need to do several small bails before you fetch the sponge, and eventually, you have to figure out where the water's getting in, from above or below.

No one here is identifying the source of the leak or its rate.

[QUOTE]

Valiente,
Your metaphor is concrete, but this financial crisis is not. It's so abstract that there is absolutely no consensus as to where the leak is, because the water in this case is invisible. It's like we're about to drown in air.

So you have to go with your instincts and place your trust in people who know best what they're doing and who have the fewest conflicts of interest. The people I trust least in this situation is a bunch of yahoo congressmen who get elected for a whole two years. These guys don't understand this problem any more than I do. Paulson, I'll wager, does.

[wind_magic]

Originally Posted by Valiente

No one here is identifying the source of the leak or its rate.

Source: Destruction of faith and trust between people and institutions. It was created by it's opposite, too much faith and trust between people and institutions. Use whatever metaphor or analogy you (generic "you", not Val specifically) want. Imagine it was two lovers who got hot and heavy, and now they're taking a step back to "examine their relationship", what about his snoring ? What about her nagging ? That recoiling away from each other is what is going on here. It's a crisis of faith and confidence in the future.

Ten years ago everyone wanted into tech stocks, they all wanted yahoo, amazon, whatever, and over the past decade they moved through housing, stocks, always with optimism and hope for the future, always with a belief that tomorrow would be better, that prices would go higher, that closer cooperation would be fruitful, that more faith would be rewarded, it's a trust and faith bubble. At some point it all gets so interwoven together that someone starts to question it, what if this business or that doesn't do well next year, what if this house doesn't appreciate in value, what if that insurance company can't pay if this loan defaults, etc. Then trust and faith moves in the other direction, people realize what is at stake, they start trying to protect themselves, they get a little paranoid, they start to question things, they stop taking people's word, stop believing what is being said, start having suspicions about what is behind the curtain, and it goes in the other direction just as fast as it got hot and heavy.

Why do couples who were happy together break up ? One day they are happy with each other, the next day they are fighting in court - same people, same environment, same everything, only "everything has changed", why does it happen ? Who knows why it happens, it doesn't make any sense, it just happens. One day you have two people who barely know each other committing to marry, start a family, build a house together, and create this unified thing, and the next they are selling property so they can divide up money, fighting over who gets the kids, arguing over who has to take the cat, and who gets the BMW. There is no "reason", it just IS.

But there never could have been a divorce had there not been a union, and the divorce is always worse when the couple was close, successful, and really built a lot together. This economy is a lot like that, it really did a lot, it really built a lot of homes, it established a lot of relationships between companies and people, there was a lot at stake here, huge amounts of trust and faith, this bull market has gone on for TWO DECADES. And now we're seeing it unwind. Why ask why. Because somebody decided to pay less for a house that they would have paid more for yesterday, because someone decided they didn't want one more credit card, because it was Tuesday, who knows why it started, but somewhere, someone, decided that it couldn't go any further in one direction, so they decided to turn around and go the other way.

And then it escalates, and we end up here, or worse. And people can say .. no no, let's go back to the way it was when we used to want to pay more for a house today because we believed it would be worth more tomorrow, or when we were willing to take on just a little more debt to buy that car we wanted, or when a business was willing to send product to another business without needing cash up front, or whatever ... back when banks were willing to trust other banks and the LIBOR was low, back when you believed gasoline wouldn't be higher tomorrow than it is today, back when we could do credit default swaps, etc.

Busts follow booms. You can't have a bust without first having a boom. You can't have a boom without later having a bust. It's a cycle. How could you possible stop it ? It sounds absurd to suggest to people that they take on more debt when they already have too much, or that they pay more for a house when prices were already too high, or that they buy another car when they already had too many. What would you tell someone to get them to go back to "the way it was", and would you want to even if they would listen ? The whole crisis could go away if everyone, at once, would go buy more stock today, or if banks, at once, just started loaning money to each other, or if everyone, at once, just went out and bought the house they had their eye on ... but they don't. It's like Sway said, we talk ourselves into a recession, it's all in our minds. But that doesn't make it any less real - the boom was all in our minds too. Trying to figure out "why" is like chasing a ghost, this because of that, banks because of loans, loans because of housing, housing because of this, this because of that. The only root cause that makes any sense is that busts follow booms simply because they do, because throughout history they always have.

Just my opinion of course.

[chucklesR]

They are going to have to unbundle the MBS's and re-rate them. I read excerpts from a book a while back talking MBS's (thanks Rick, had to read to keep up) - it's a serious problem and there is no easy fix other than serious regulation, oversight and funding to ensure the reg's are met.

Problem is the bundler's bundled in garbage in accordance with the rules and nowhere in the 'bailout' are the rules changed.

[PBzeer]

I guess the right solution, really depends on what result you want.

[PBzeer]

Paulson's remarks from Mar 16, 08 on ABC:

He went on to reiterate the administration's desire to limit government intervention. "I'm looking very carefully at any proposal. But all the ones I've seen, which call for much more government intervention, raise more problems and do more harm than they would do good."

I guess if you get enough chances at fixing something, you'll eventually get it right.

[cardiacpaul]

yup, 1987, nobody learned...
the "dot bomb" of the late 90's. nobody learned...
Cisco trading @ close to 100 a share, slpitting every 6 months. Companies that had an IDEA for a product but no working model getting millions in front money. AFC, Cerant, Fibex, Premisys,JetCell PCom and a hundred others, all trading for piles a share with NO revenue, or even a clue as to where the products fit in the market. "Create the demand and fill the need" didn't fit in any more. All you needed was a slick ad campaign, not to the end user, but to the VC's and the IPO hacks, get bought out and fly to one of those "E" islands for six months.(Bimini, tahiti, bali... `~e~ islands) Get drunk and do it all over again. Then the emperor had no clothes.
Same thing here. Give it dollar figure, it has to have a "value" even if its a buck, thats a "value".
If it has no one wants to buy the product, at any price, then, its worthless. lose your money, lose your bet, you made some money, get over it. The sky ain't gunna fall on your head.


once again, Horses eat, Cows eat.... (see they actually do "work" for the food)
pigs... get eaten. (pigs... just eat... they ARE the food)

[sailhog]

Originally Posted by cardiacpaul

once again, Horses eat, Cows eat.... (see they actually do "work" for the food)
pigs... get eaten. (pigs... just eat... they ARE the food)

You know, Paul, this kind of hate speech isn't acceptable in the 21st Century. I suppose you're going to apologize now, and say that "Some of my best friends are pigs, blah, blah, blah..."

I've reported this post to the moderators.

[cardiacpaul]

Hog...
love ya man....
but

BITE ME!
lolololol

[sailhog]

I'm like Rosa Parks around here.

[sailaway21]

Oddly, I see somewhat of a consensus emerging here. Even Rick and I share some common ground! From where I am sitting we are focusing too narrowly on the real estate market and those pesky MBS's. We need to focus more strongly on the overall economy, which may now be threatened.

We're not really interested in the MBS's and those who created and profited from them. If they take their licking, along with the house flippers, and those who bought too much house for their income, what care we? Not much, until it effects the rest of the economy right? So how do we keep the rest of the economy cooking right along while the MBS matter sorts itself out in the market. (And the market will sort out the MBS mess one way or another-they put 'em together, they can soprt them out, given time.)

I'd propose something I stole from somewhere I cannot remember but it made some sense to me, a free market capitalist. The government can do three things: eliminate the corporate income tax, eliminate the capital gains tax, and take the $700 billion and announce that it is being invested in fast-tracking a nationwide nuclear energy program. The latter would be spent not on the nuclear energy industry itself per se but on expedited environmental impact research, land acquisition, and all those usual government hurdles that make building a nuclear plant a project for your grandkids enjoyment.

Cap gains and corporate income tax eliminations would do two things. It would instantly make corporations more wealthy, needing less investment monies, and it would also make the market much more desirable overnight, encouraging more participation immediately. Both would inject much needed liquidity into the market and industry immediately.

With the economy humming along, immensely aided by a massive demand for new labor in the power plant construction industry, the market will have ample time to devalue housing to a rational level as well as find buyers, or no buyers, for those pesky MBS's. Medicine will be administered but, hopefully, only to the patient. We might even like the results of this so much we might even question why we taxed corporations and capital gains in the first place!

And the taxpayer might get a tangible bang for his buck!