Humbled By Our Ignorance

One reason people are not outraged by what is going on is the welfare state that has been created in our country.We are wittnessing the dumbing down of America. P.W.L.

What changed, if anything, in 1994-95? I'm looking at a graph of U.S. home ownership rates published 12/20/08 in the New York Times, front page, the infamous news story blaming the current administration for the housing collapse. When I look at the graph it reminds me of another, the S&P. The two share the shame abrupt and steady increase from 1994-95. Of course they wildly separate at 2000 but that incline from 94-95 is eerily coincidental.

The initial creation of money is done by borrowing from the Federal Reserve, which we pay interest on. We start out in the red on money that was never there, loan it to people who can't afford to repay. %70 of American's income goes towards state and federal taxes, fees, mandated car and home insurance, social security, child support, FICA, etc.

We are over taxed and over regulated, the founding fathers would be ashamed of us for what we're putting up with. Congress should coin money, the illegal income tax should be abolished and this would increase spending and the ability to repay. The government is too big, too crooked and full of cronyism. . We are enslaved in a huge fiat ponzi scheme that isn't backed by anything formidable, like gold or silver. The central banker's have pulled off the ultimate snake oil scam right under the noses of the supposedly finest finacial experts in the world. The politicians were given large amounts of fiat money and they fell for the illusion of wealth and power at the expense of the demise of the U.S. . The bankers figured out that if you wine and dine the politicians they would eventually get drunk on ego,power and wealth and sell the soul of the citizens. Pretty clever. The whole political system is now rotten to the core. The only chnace we have is to go back to the Constitutional responsibilities that Congress was supposed to do and dismantle all the other hair-brain ideas they came up with, or else we're finished.

No point blaming the politicians, bankers and regulators. There are several people who lived within their means, saved money and are OK now. The greedy ones got their comeuppance. If the state had put controls on their borrowing, they would have sreamed murder.

Another highly flawed article by this detached from reality reporter. What he describes as "In 2008, much conventional wisdom crashed." was just common stupidity run wild.

At least as early as 2002, you can find blogging on Yahoo stock boards that include in-depth discussions/implications by "average citizens". These discussion covered the following topic/themes, among others: the issue of & the weak science & mathematical underpinnings of financial derivatives (i.e. MBA Junk Science); Fed Reserve (Bubble Boy) monetary policy; bank bailouts (2 major banks were reported technically insolvent - was there an FOMC meeting of historic importance/consequence never reported on/about July 25, 2002? - curious minds want to know); FNM/FRE; strategic implications of the repeal of Glass-Stegall; Nassif Taleb's "Fooled by Randomness"; the long-range implication of the Tech Bubble/Enron meltdown; Helicopter's Ben thoughts on deflation response; many other germane topics. The blogging record has been "kept".

How could so-called expert economists & policy makers miss many of the early warning signs?

What do economists & policy makers do constructively with their time?

To be surprised by the events in 2008 suggests a critical lack of strategic vision and aptitude by economists/policy makers IMO - not exactly the greatest confidence builder to resolve current issues.

So-called expert economists & policy makers => Junk science; no credibility.

2008 was no more than the reappearance of wise guys in the money business learning once more that they can't break the normal rules of business for an unending vista of fabulous personal wealth and success -- and deep down, not caring much about anything other than the harm to their personal prospects. Their minds doubtless have already come up with a new generation of high-stakes business scams.

Today's headlines read very much like a rerun of Michael Lewis's 1980s book Liar's Poker, in which he recounted his experience as a trade for Salomon Brothers. Whole pages of this book read like current history, with only some of the names changed: the fear then was whether the US could survive without a steel industry: it seems to be "without an automobile industry" this year.

Lewis's memoir recounted an investment banking industry in which persons with rat-like ambitions and expensive college educations set about selling expensive products to persons for whom they had the greatest contempt: their customers. Those most successful at this, got the biggest year-end bonuses (again, something that reads like late-2008 news). Lewis pointed out that much of the industry he worked in operated on the slogan that "Customers have short memories", and who would argue against the proposition that this is still the ruling industry paradigm?

Wow vickita I'm happy for you that you've managed to keep it in persective all this time. I suppose society should have listened to you more through this blogasphere. Perhaps things wouldn't have turned out so bad for us all.

What was your name again?

Wow vickita I'm glad that you've managed to keep it all in perspective all this time. I suppose society at large should have listened to you more often through the blogasphere. Perhaps we would not be in this mess.

What was your name again?

Outstanding Article! Really. Heres an excerpt---Los Angeles, CA . I agree, where consumers could borrow and spend more all because higher home values substituted for annual savings. The fact personal savings rate dropped from none 9 percent of disposable income to almost zero is amazing. That when you consider the savings rate failed to offset the borrowing of the debtor for which some rationale does exist. According to L.A. based analyst Maher Soliman (NLS) "not as a ratio of debt to savings) more so from a liquidity view and surplus cash. But the cash proceeds borrowered went over time to cover debt service where debt allocation and proceeeds far exceeded the earnings capacity for many many borrowers." The housing sector benefited for a long time. So did duable goods , retail sales and job stability. But course new home sales and resales was the big winner. According to Soliman, "the stretch to qualify middle income borrowers was in order to put them into homes far beyond their earnings capacity (state income liar loans) which we all know. My point is the imbalance of debt to savings is less important as is the faux short term elixer to the economy and racket caused by lenders and the housing sector. These home sold to move up buyers and their homes to move up buyers and on down the chain". The events over 2003 to 2007 established a new economic class. This upper middle "orphan" class is easy to find. They reresent every home in America where a foreclosure represents that short lived consumer expereince in neighborhoods (meaning value range) they did not belong. The cash borrowered and the savings was used to cover debt service. That's the crime and mortgage executives who caused this argument for a ponzi like pyramid must pay the price. These lenders who are not lenders in this Fanie Mae "clone" that failed as a Pass-thru investment are the real toxic waste when you consider foreclosure is forever. Not one lender has come out to say "Yes, we are sorry"! Adelphia, Enron and Sarbanes Oxley...where are you? www.borrowerhotline.com.

Yea, things are messed up, as will happen from time to time. The rich will hide behind walls and the rest of us will suffer through. Hopefully re-regulation won't go too crazy such that the cycle will start over again. In a dynamic world anyone who tells you that a completely steady state can be achieved is delusional.

Oh, and as for being ready for WWII, we were completely unready. The US has a long tradition of not being prepared for military conflicts. Like occupying Iraq with thin armored hummers being a recent example.

HappySailor if you really want to know where we are, try this website. http://www.ritholtz.com/blog/wp-content/uploads/2008/12/we-refed.gif

USNA 66

Usually we learn from our mistakes. But there can be so many mistakes that learning can't keep up. As the economy begins to freeze up from this recent storm of mistakes, things will slow down and then maybe learning can catch up again. Already, there are many people who learned to never again sign a sub prime mortgage and there are a few who invested millions in hedge funds that blew up who have learned to watch it a little closer next time. That is, if they have any money left to invest. There are a lot of these examples. I leave you with the rest, which you well know. Blogging is fun. Thanks for sharing your ideas. I like to read them.

2008 was the year that the underlying fundamentals of capitalism came to the surface, and they are not pretty.

Capitalism is predatory, first and foremost. When the banks gave sub-prime loans to people who would never be able to repay the loans they did so with the full expectation that they bank would be able to repossess the property and sell it at a profit in a rising real estate market. They never bothered to pay attention to simple factors such as "what goes up must come down". The run up in the value of real estate in this decade was similar to the run up in stocks in the 20s, and it is having the same result.

The U.S government is selling debt to pour capital into the credit markets, which is like a dog trying to chase its own tail. The more money that the Fed pours in to the capital markets the greater the cost to the U.S. taxpayer, the very same taxpayer who is losing his job and/or house to the bank that created the economic crisis in the first place through pure and simple greed.

If you miss a few mortgage payments, the bank takes your house away, but if the bank loses billions of dollars they simply ask the biggest debtor in the world - the U.S. Government - for billions to bail them out, with no strings attached.

The U.S. has lets its true strength - manufacturing -disappear in order to "improve the standard of living". If the present trends continue the U.S. will no longer be in a position to respond to a military challenge the way we did in WW II. It was America's ability to use our semi-idle industrial base to become the arsenal for democracy. Now where are we?

2008 was the year that the underlying fundamentals of capitalism came to the surface.

Capitalism is predatory, first and foremost. When the banks gave sub-prime loans to people who would never be able to repay the loans they did so with the full expectation that they bank would be able to repossess the property and sell it at a profit in a rising real estate market. They never bothered to pay attention to simple factors such as "what goes up must come down". The run up in the value of real estate in this decade was similar to the run up in stocks in the 20s, and it is having the same result. Ask the Dutch about the value of Tulips.

The U.S government is selling debt to pour capital into the credit markets, which is like a dog trying to chase its own tail. The more money that the Fed pours in to the capital markets the greater the cost to the U.S. taxpayer, the very same taxpayer who is losing his job and then his or her house to the bank that created the economic crisis in the first place through pure and simple greed.

If you miss a few mortgage payments, the bank takes your house away, but if the bank loses billions of dollars they simply ask the biggest debtor in the world - the U.S. Government - for billions to bail them out, with no strings attached.

The U.S. has let its true strength - manufacturing -disappear in order to "improve the standard of living". If the present trends continue the U.S. will no longer be in a position to respond to a military challenge the way we did in WW II. It was America's ability to use our semi-idle industrial base to become the arsenal for democracy. Now where are we?