Six lessons on the financial crisis that help explain why we’re still in one.

Six lessons on crisis that help explain why we’re still in one:

  1. When you don’t reinvent institutions at a time of systemic failure, the problems they’re creating don’t just magically disappear.
  2. When you prop up (read: bail out) the institutions causing the crisis, instead of reinventing them, the crisis will deepen.
  3. When dysfunctional institutions prop one another up, prosperity’s a house of cards. Crisis becomes stagnation.
  4. When propping up failed institutions has drained your resources, you’ve turned a crisis into a catastrophe.
  5. The longer it takes you to see a crisis for what it truly is, the disproportionately worse it’s likely to get.
  6. When people who are prisoners of the

a post capitalism look at how to run the business of life

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Foreclosure Tsunami 2.0 Is Coming, And Is About To Kill Any Hopes Of A “Housing Bottom”

April 7, 2012 by · Leave a Comment
Filed under: The Economy and Current Affairs 

Housing ‘Bottom’ about to drown in a new wave of foreclosures.

“In what appears to be surprising news for some, Reuters has an article titled “Americans brace for next foreclosure wave” whose key premise is that “a painful part two of the [housing] slump looks set to unfold: Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures.” Thank the robosettlement, where in exchange for a few wrist slaps, contract law was thoroughly trampled by America’s attorneys general, but far more importantly to the country’s crony capitalist system, the foreclosure pipeline was once again unclogged, and whether one does or does not have a legal title on a given house, the banks are now fully in their right to foreclose on it. What this means also is that America’s record shadow housing inventory, which is far greater than any fabricated number the NAR reports on a monthly basis, is about to get unleashed on buyers, shifting the supply curve much further to the right, as up to 9 million new properties slowly but surely appear on the market. And while many will no longer be able to live mortgage free, forcing them to go out and rent (and no longer be able to afford incremental iGizmos), it also means that the prevalent price of homes is about to take another major tumble, making buffoons out of all those who, once again, called for a housing bottom in early 2012. Here’s the simple math: there will be no housing bottom until the 9 million excess homes clear.”

Shadow inventory about to go vertical

Two comments re: the bolded portions above. First, the legal principal protecting your property from unreasonable seizure has now been dismantled and absent a Supreme Court miracle gone forever. In fact holding clear title to a piece of property doesn’t even protect you from Read more

European debt-crisis issues are lessons for the US. We’re just a few years behind them and if we pay attention…

March 30, 2012 by · 1 Comment
Filed under: The Economy and Current Affairs 

European debt-crisis issues are lessons for the US. They belong in the political debate. Both political parties are responsible for our growing debt issues. Bush ran up huge deficits. Obama continued them. Each party blames the other. See the whole post here: Back from Paris

Especially pay attention to item #4. that begins: Private holders of Greek debt had several years to get out…

Yet Another Government Debt Crisis

For extra credit from ‘The Only Thing New In History’ department: Yet another sovereign debt crisis If that link no longer works use this one to see the PDF.

The bullet points:

  • Having believed the myth that governments don’t default, many banks and investors will take huge losses in Europe’s sovereign debt crisis.
  • The historical regularity of government defaults—more than 250 have occurred since 1800*—gives the lie to the notion that holding sovereign debt is “risk-free.”
  • The sovereign debt crisis of post–World War I Europe provides highly relevant lessons for today.

*Referencing Rogoff & Reinhart’s work in “This Time Is Different”. See ‘Whodunit’ in the column to the right for this essential book.

Bad Economic Theory caused the financial collapse along with greed, corruption and leverage says new book

February 20, 2012 by · Leave a Comment
Filed under: The Economy and Current Affairs 

Last week in Economists Prove Einstein’s Theory About Repeating Behavior And Expecting Different Results I was talking about how mainstream economists have earned their dismal reputation because I’ve been searching for a better model of how the economy actually works. Now a new book explains just how the current mainstream economic theory of ‘Rational Expectations’ not only is wrong but in fact is one of the leading causes of the financial collapse. Better yet the author explains why the new economic model which is based on game theory is better  for understanding the financial world but additionally offers a way to avoid future collapses.

American Gridlock: Commonsense Solutions to the Economic Crises

I have read in numerous places recently about how the profession of economics has failed to deliver real benefits because the mainstream theory is built on the wrong assumptions. I and I’m sure you also have experienced the downside of this but these pieces until now have only been able to point out the problem not the solution which would be a new model of the economy and what it would teach us to do differently. Well now we have a better model and what needs to be done to move Read more

NY AG Schneiderman and OWS finally convince Obama to go after banksters. Via TBP Blog

February 2, 2012 by · Leave a Comment
Filed under: The Economy and Current Affairs 

Elected attorney general in November 2010, Schneiderman discovered upon taking office that the Obama administration was avidly promoting a proposed settlement among five mega-lenders… In return.. the feds and the state AGs would grant the banks immunity for not just any further robo-signing misdeeds but for all illegal conduct that had led to the 2008 collapse… the banks would be free and clear of any state or federal prosecution for these offenses. Indeed, with no agency of government able to bring legal action, there would be no serious investigation of whether and how the banks broke the law.

“We have to get accountability,” Schneiderman told me this week. “We have to get substantial relief for homeowners and investors. And we have to get the story told clearly and factually, so the history doesn’t get rewritten. If you listen to the presidential debates, you hear the same supply-side and deregulatory nonsense that got us into this crisis. If we don’t uncover the facts and put them out there, it will happen again.

See the whole article here: The man who shaped Obama’s drive to hold banks accountable

Whodunit? Great books on the causes and solutions to the Financial Collapse

February 1, 2012 by · Leave a Comment
Filed under: The Economy and Current Affairs 

A year ago for Christmas I received a Kindle eReader (thank you Tammy!) and it has greatly accelerated my consumption of books. One of the subjects that I dove (continued to dive) into was the causes of the financial collapse. The conditions that contributed to our undoing, how we get out of our ongoing mess and the steps that should be taken to prevent a repeat are vitally important to our future as well as to our children and their children.

Learning from History

I have written about this myself since 2008 (see here and here for instance) and have read a number of books on the subject (see my Whodunit list down to the right on this page under Learning From History) that I thought covered fairly well the breadth of the subject and helped me refine my understanding. However I was humbled last night by a blog post on The Baseline Scenario that linked to Reading About the Financial Crisis: A 21-Book Review by Andrew Lo, a truly epic undertaking that is well worth reading on its own.

The causes are Read more

Is the credit crisis the disease or the symptom?

September 2, 2009 by · Leave a Comment
Filed under: The Economy and Current Affairs 

I am running a friend’s campaign for city council so I’ve been talking to a lot of people the last few months. Most of the conversations have been about our home town of Bellevue WA and the local issues the city is facing but I’ve also had a number of conversations about the economy, real estate and the credit markets. The majority of the people, many of whom are developers, property/asset managers or owners, are searching for the turn in the cycle and are looking forward to the opportunities that will arise when things return to normal.

I too am looking forward to the upswing in the real estate cycle but I’m not sure that back to ‘normal’ is where we headed. I believe for the last two decades we have been and are living in the ultimate payoff of the Marshall Plan and its siblings. We have successfully avoided a third world war by creating market based economies where enemies might have arisen. This is an entirely positive outcome and surprising to me, a child of the cold war era. Read more