Six lessons on crisis that help explain why we’re still in one:
- When you don’t reinvent institutions at a time of systemic failure, the problems they’re creating don’t just magically disappear.
- When you prop up (read: bail out) the institutions causing the crisis, instead of reinventing them, the crisis will deepen.
- When dysfunctional institutions prop one another up, prosperity’s a house of cards. Crisis becomes stagnation.
- When propping up failed institutions has drained your resources, you’ve turned a crisis into a catastrophe.
- The longer it takes you to see a crisis for what it truly is, the disproportionately worse it’s likely to get.
- When people who are prisoners of the
Continue reading Six lessons on the financial crisis that help explain why we’re still in one.
Three related research pieces from the guy about whom former Fed Chairman Paul Volcker said had a degree of detail that is “mind-blowing” and admits to feeling sometimes that “he has a bigger staff, and produces more relevant statistics and analyses, than the Federal Reserve.”- The Economist
A Template for Understanding…
Ray Dalio | October 2008 (Updated March 2012): The economy is like a machine. At the most fundamental level it is a relatively simple machine, yet it is not well understood. I wrote this paper to describe how I believe it works. My description is not the same as conventional economists’ descriptions so you should decide for yourself whether or not what I’m saying makes sense. I will start with the simple things and build up, so please bear with me. I believe that you will be able to understand and assess my description if we patiently go through it.
Ray Dalio | February, 2012: The purpose of this paper is to show the compositions of past deleveragings and, through this process, to convey in-depth, how the deleveraging process works.
Ray Dalio | June, 2011: This study looks at how different countries’ shares of the world economy have changed and why these changes have occurred, with a particular emphasis on the period since 1820. As explained in this study, the rises and declines in countries’ shares of the world economy occur as a result of very long-term cycles that are not apparent to observers who look at economic conditions from a close-up perspective.
The American economy is making a significant shift from buying to renting, and that may ultimately be good news. According to a USA Today analysis of Census data released this weekend, since 2006, the number of households that rent has grown by about 700,000 a year, while the number of households that own has fallen by about 200,000 a year.
[R]enting is better than owning for many Americans. Indeed, dozens of recent studies have shown that, excepting the go-go bubble years, houses tend not to make very good investments at all: A prospective homebuyer would have made more money taking her down payment, parking it in inflation-adjusted Treasury bonds, and renting.
But it is conclusive: Not everyone should own a home. The recession has helped erode the stigma against renting, with about 70 percent of Americans now admitting that it has advantages over buying a house. If people are making unsentimental decisions about whether homeownership is really worth it for them, that is at least one small benefit of the housing bubble bursting.
See the whole article with links to reports and surveys here: The Rent Isn’t Too Damn High
Great advice from Barry Sternlicht plus much, much more on real estate, investment, capital, leadership, opportunity, Europe, China while speaking at the Schack real estate conference. He is one very smart guy while being personable and humble, a rare but valuable combination. Reminds me a bit of my virtual mentor Tom Barrack, and not just because of the haircut! Barry even mentions wanting to learn how to surf, something Tom could definitely help with.
Here’s the link to the video: Barry Sternlicht at Schack RE Conference For more great video from the conference Continue reading Find the freight trains in your life and get on them instead of in front of them.- Barry Sternlicht Video via @Michael_MBA
The Oregonian reports data from the state employment department about the Portland-area’s unemployment level falling to 8.6 percent, its lowest in three years.
Meanwhile, most people are still unaware of a report issued last month by the Oregon Employment Department forecasting an 18 percent increase in employment statewide in the coming decade. See the post here: http://bit.ly/yxMb1y
Thanks to Greg Frick at HFO in PDX
My brother Tom shared an article from the Cato Institute entitled: “Why Gold-Defined Money Is the Answer to Our Monetary Crack-Up”.
I agree with the writer in theory but as Yogi Berra said: In theory, there is no difference between theory and practice. In practice, there is. A couple points:
With a fixed currency like a gold standard innovation and value creation that grows the economy will be constrained and what growth does occur will cause prices to fall, hurting the producers of goods and limiting real returns to their investors. There has to be some mechanism to grow money supply at the approximate rate of real growth in the economy.
The real problems we’re facing around the world are from excess leverage and at the end of every debt binge the unwinding happens in three ways. Debt creation can be reduced and austerity can be imposed to make room for Continue reading Is a Gold Standard the Answer to Our Monetary Crack-Up?
We’ve cornered ourselves trying to bail out the “Too Big To Fail” banks. In trying to keep them alive in the name of saving the financial system we’ve been pumping them full of our childrens’ tax dollars to little effect and we wonder why they’re not really lending. The downward spiral of their balance sheets from both toxic assets and falling stock price continues but how to stop that spiral is being debated hotly in boardrooms, financial markets and congress.
What’s preventing a solution from emerging is the “Too Big To Fail” trap. Until we recognize that these banks have already failed and we are throwing good money after bad we will continue pouring money down a bottomless hole. It’s like lending ‘grocery money’ to a junkie. We can’t allow ourselves to be held hostage by a handful of big banks. Continue reading The Bank Bailout Trap
…are doomed to repeat it”. Winston Churchill’s advice is very timely because it seems like 60 years is about as long as we can go before having to RE-learn the important lessons from The Depression.
The repeal of the The Banking Act of 1933 (AKA The Glass-Steagall Act) in 1999 was the beginning of the failure that ultimately led us to where we are now. One of the big lessons that the Crash and Depression taught us was that banks who took deposits and made loans should be separated from investment houses so that problems on Wall St. wouldn’t wipe out the whole financial system. When we unlearned the lesson in ’99 the banks and Wall St. had a heyday of buying each other up in a rush to create ‘financial super markets’. The idea was that once you came in to deposit your paycheck, they could sell you a few stocks, bonds, mutual funds and even some insurance.
Eventually we ended up with a couple of these huge financial institutions and the smaller regional players followed suite, merging and buying each other up to get big enough to stay competitive with the giants. Those from the Northwest may remember when Washington Mutual was a regional savings bank in the Puget Sound area and ran ads saying that they were your friendly local bank and would never do the bad things that the huge evil banks do. Continue reading “Those who fail to learn from history…