Double Or Nothing
The Economist magazine has an article which says almost the same thing as Belmont post The Anatomy of a Lie, which was published on July 2. In the Anatomy of a Lie I argued that the fundamental problem with the discovery that LIBOR was being fixed is that it meant the financial system was based on bad data. Why is this a catastrophe? Because much of what you believed about value and who possessed it was false.
But that misses the biggest aspect of the financial crisis. It’s not OK if everyone does it, if in the process, they are unconsciously distorting their own information base …
In a simple system that might not matter. But a global financial system with signals feeding back on each other it has created huge distortions in value, distortions which are the heart of the current world crisis. Ironically LIBOR itself was created as a benchmark to anchor other financial instruments which in turn depended upon it …
The rate fixing process introduces a systematic bias into the price signal and after a while things — especially instruments dependent on that price — wind up in a different place …
But if one the variables in their equations is rigged, and rigged for a long time at a value different from the true rate then error increasingly accumulates within the financial system. The blind lead the blind. No quantitative model can fix bad inputs. The net result of dishonesty in the financial system is that parts of it become grossly overvalued and other parts vastly undervalued. The price distortion inevitably drives resources into the wrong places and money into the wrong — or shall we say right — pockets. It also sets up a system crash.
The financial system can be regarded as a vast database which stores the past, present and future values of “real world wealth”. But operations on a database — any database — can only be safely performed if the data is left uncorrupted; and if the reconciliation process has integrity. But if transactions are routinely and intentionally writing the wrong values into the database it eventually diverges from the objects which it purports to represent. At some point the database becomes effectively worthless. In a financial system this creates a giant element of risk that shakes it to its foundations.
Now here’s how the Economist puts the same idea. They emphasize the fact that many values derived from LIBOR are in fact standing in a puddle of fiction.
What may still seem to many to be a parochial affair involving Barclays, a 300-year-old British bank, rigging an obscure number, is beginning to assume global significance. The number that the traders were toying with determines the prices that people and corporations around the world pay for loans or receive for their savings. It is used as a benchmark to set payments on about $800 trillion-worth of financial instruments, ranging from complex interest-rate derivatives to simple mortgages. The number determines the global flow of billions of dollars each year. Yet it turns out to have been flawed.
In theory, LIBOR is supposed to be a pretty honest number because it is assumed, for a start, that banks play by the rules and give truthful estimates. The market is also sufficiently small that most banks are presumed to know what the others are doing. In reality, the system is rotten. First, it is based on banks’ estimates, rather than the actual prices at which banks have lent to or borrowed from one another. “There is no reporting of transactions, no one really knows what’s going on in the market,” says a former senior trader closely involved in setting LIBOR at a large bank. “You have this vast overhang of financial instruments that hang their own fixes off a rate that doesn’t actually exist.”
The Economist’s version has a lot more oomph because it attaches likely numbers to the problem, whereas my formulation is basically a simple statement of principle that would be felt by any DBA who suddenly realizes his whole database is a joke. What does it mean when “$800 trillion-worth of financial instruments, ranging from complex interest-rate derivatives to simple mortgages” is based on something as factual as Harry Potter and the Goblet of Fire? Maybe it means LIBOR doesn’t really matter. It could also mean they are also fictive themselves.
This creates an even more interesting problem, at least for any DBA. Which is if the database is so corrupt then why hasn’t it crashed yet? What keeps the world spinning round? Why don’t the banks just crumble into dust? What is holding them up?
The answer may lie in the old idea of a doppelganger, in which reality becomes oddly bifurcated. Split in half. Somehow nature has generated two non-identical copies of the same thing. Now which is the “real me”? Carl Sandburg tells the story of Lincoln meeting his doppelganger.
A dream or illusion had haunted Lincoln at times through the winter. On the evening of his election he had thrown himself on one of the haircloth sofas at home, just after the first telegrams of November 7 had told him he was elected President, and looking into a bureau mirror across the room he saw himself full length, but with two faces. It bothered him; he got up; the illusion vanished; but when he lay down again there in the glass again were two faces, one paler than the other. He got up again, mixed in the election excitement, forgot about it; but it came back, and haunted him. He told his wife about it; she worried too. A few days later he tried it once more and the illusion of the two faces again registered to his eyes. But that was the last; the ghost since then wouldn’t come back, he told his wife, who said it was a sign he would be elected to a second term, and the death pallor of one face meant he wouldn’t live through his second term.
For those with a distaste for mystical Central European concepts like the doppelganger there’s another metaphor which may be more appealing: the temporal paradox. What if you could travel back in time and meet an earlier version of yourself? What would happen when there were two entities in a situation where only one could exist?
For instance, if a time traveler were to meet his double from another time, the double would merge with the time traveler, making the traveler a part of the time he is visiting. The same would hold true for events. Two events would merge into the nearest event which does not produce a paradox.
The merge occurs. What is a merge? A merge is what DBAs do when they have nonidentical copies of the same record and have no basis to clearly determine which of the two is correct. So they pick one, or pick parts of each and make a single record out of two. If the financial system is full of contradictions and yet it works somehow it doesn’t mean the contradictions aren’t fatal. It only means we haven’t been forced to choose yet. If contradictory facts are not, metaphorically speaking in the same room, the choice is not forced. A lie can live, if it avoids the truth just as a man can hide a mistress from his wife provided they never meet. When they do all hell breaks loose.
So in a financial system a set of books can exist by fiat, no matter how dishonest, and it can continue indefinitely for so long as confidence in the fake books is maintained. Like Wile E. Coyote the fake system can keep running on presumption, because there is no other reference for value, or to put it another way, for so long as Wile E. does not look down. Once the truth is discovered, there are two answers to the same question — always a nightmare to the DBA — and then a choice must be made.
As soon as the rival record appears, the trust which the fiat record formerly held is destroyed. Suddenly I know Greece is bankrupt. It’s bond rates climb. Of a sudden people realize that a bank is probably insolvent; so deposits are demanded, checks are cashed; the whole of the fiat is compared on a one to one basis with the actuality. And when there are discrepancies the contradictions can only be fixed with a merge.
The world’s recent problems are largely the fault of the truth. If it weren’t for the truth, we’d be in Eden still. But it has unfortunately emerged that people’s home values were inflated; unions and other persons discovered their pensions were undervalued. We thought we were rich according to the record, but the truth came in the door and told us we were broke. The record was lying.
It turns out that in reality there are more claims on wealth than there is value to satisfy them. This is a classic bankruptcy resolution scenario. There’s X dollars and there are NX claims where N > 1. The problem is who gets paid. That is another way of asking: how do the records get merged? And the answer unfortunately is that it usually depends on who is holding the revolver — on who’s doing the merging.
The man with revolver goes to the head of the line. Everybody knows there’s preference order in bankruptcies. The guys with the superior claims get their cut first and a promise is made to pay the rest later, if there is a later. It happened with GM and it happened in Argentina:
Corralito (Spanish pronunciation: [koraˈlito]) was the informal name for the economic measures taken in Argentina at the end of 2001 by Minister of Economy Domingo Cavallo in order to stop a bank run, and which were fully in force for one year. The corralito almost completely froze bank accounts and forbade withdrawals from U.S. dollar-denominated accounts.
The Spanish word corralito is the diminutive form of corral, which means “corral, animal pen, enclosure”; the diminutive is used in the sense of “small enclosure” and also “a child’s playpen”. This expressive name alludes to the restrictions imposed by the measure.
After a time, when the preferred claimants are finished, the deposits of the great unwashed are unfrozen and they are paid in devalued money. The two books of account have met and after the merge the financial system is whole again. There is no divergence. The winners are really rich and the losers are really poor. But the cost of the merge has largely been borne by the guys without the revolvers. One movie maker turned this into a tagline.
“They say that if you meet your double, you should kill him… Or that he will kill you… I can’t remember which but the gist of it is that two of you is one too many. By the end of the script one of you must die.”
What the LIBOR fixing shows is that the financial system is unlikely to be a true database. It is corrupt. The system has been fed too many lies for anyone to believe what it says is gospel. The true value of each claim on will be precipitated when the doppelgangers meet; when the public loses confidence in the nominal or face record and participants force a merge in each financial domain, as is happening in Europe and in America. We call this process the Global Financial Crisis
Who will get the dough? That is for another post.
Belmont Commenters
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OT but apt. Today saw where Orange County Californians continue to waltz in the Titanic ballroom as over the past five years their county leaders have approved a 17%, that’s right – 17% public employee salary/benefit increase. Apparently the borders of Disneyland have exploded. Or maybe it was the Funny Farm that ran wild.
In the book The Big Short the way in which the bundled securities based on mortgages were assessed for risk was described.
So you start out with a bunch of mortgages handed out to people who have little or no chance of repaying them based on their actual credit history and income level.
No problemo! You just bundle those in with mortgages issued to illegal aliens who have some income as itinerant farm workers and which have NO credit history at all, since officially they do not even exist. So, unlike the rest, they have NO negative credit history. Presto chango, may I have the envelope please? The investment is now rated AAA! Taaaa daaa! We are all rich!
And what’s the sign Wile E. Coyote would hold up at that moment of realization?
“Goodbye Cruel World!”
The only thing bothering me is the fact that Reality has yet to show up at this party. Is he being fashionably late? Or have we entered the Twilight Zone?
Well, actually one other thing is bothering me. I get the fact that a whole lot of pain is about to be laid upon the masses, but for those of us at or near the bottom of the crab bucket will we really notice a difference? My family didn’t really understand all the hulabaloo about the Great depression because we already lived that way before the crash.
I hope Biden gets the kharma bus though, just because he is a doofus.
Well I can’t find it online, but WSJ’s lead editorial today about the LIBOR/Barclay’s thing says the just adjudicated behaviors began in 2007, and what it was is that everyone else was already doing it, and Barclays tried to find someone to complain to, but lacking any response they shrugged and got into it themselves.
It is a consequence of other beliefs I have that there is really not much point in trying to blame Barclays for whatever it is they are being accused of or even admitting. The problem is the tight coupling to something so etherial as a “LIBOR” in the first place.
Whatever Ms. Libor has done, it is a pimple on a flea compared to what Bernanke does everyday before breakfast.
Oh, I suppose the Libor should be aired out and straightened out, but who is going to bell the Bernanke? It’s a travesty to waste worry on the Libor, given current US rates, market controls, and only Bernanke knows what else.
But don’t worry, California has just “approved” the first billions of dollars for a train from nowhere to nowhere at high speed except where they are building it first where it will be constrained to low speed, obviously hoping to grab some of the Obamabux from the Obamastash, because if it were really California money to spend, I doubt even California Democratic politicians would be idiotic enough to vote for it. Well then, Pelosi might, “every dollar spend has a multiplier, right?”
Yeah, I’m worried about the fourth decimal place on the LIBOR rate.
W: “It turns out that in reality there are more claims on wealth than there is value to satisfy them.”
Indeed. That is the heart of the problem.
In a rational world, we would all focus on how to increase ‘value’ — dig mines, build steel plants, get nuclear power plants on line, harvest trees before forest fires burn them up. It would at least go part of the way towards minimizing the losses we will all have to bear one way or another.
In this silly world, our leaders are likely to focus on ‘women & minorities being hardest hit’, and bring in more regulations which will reduce ‘value’ and make the problem worse.
Eventually, reality will intervene. See – Soviet Union, end thereof.
“Eventually, reality will intervene. See – Soviet Union, end thereof.”
It took seventy years for reality to show up in earnest in the USSR. Just what is holding up the dead man here? Do we have just enough producers to keep the zombie moving? I ain’t old, but I don’t think I will be around when reality shows up to intervene. I keep voting and working at the local level and it seems to me that nothing changes except the names… Stop the merry go round, I want off!
I have had a go at putting the LIBOR shenanigans in a wider context.
http://skepticlawyer.com.au/2012/07/03/corrupting-risk-on-top-of-the-surplus-pyramid/
Pushing risk downwards is what expropriating elites have done throughout history–indeed, from the beginning of history. An unthinking sense of entitlement is no small player in all this. As is moral interconnectedness; tolerating appalling behaviour by banks in countries far away of which we know little turns out to have consequences because it is, nowadays, all the same global industry. (You can call it blowback, if you like.)
As I noted in the above post, to be shielded from consequences is to be shielded from responsibility. To be shielded from responsibility fundamentally undermines moral constraints. It is, in a quite direct sense, morally corrupting. In the sense, and for the reasons, that Lord Acton meant.
W + K: “It turns out that in reality there are more claims on wealth than there is value to satisfy them.”
Indeed. That is the heart of the problem.
Yes, it is the heart of A problem, but not the LIBOR problem.
LIBOR is used to calculate the division of the claims on pre-existing wealth. Claims on non-existant wealth don’t matter, as the claimants are not going to get their claim. For example, on an interest rate SWAP, the payer of the floating leg will benefit from the reduced LIBOR, the receiver will lose, but the total wealth will remain the same.
There could be real damage (ie, loss of created real wealth) arising from the loss of confidence in the City of London, but I doubt it.
Anybody who thought that LIBOR (or any other human ‘index’) was scientific was a dreamer. There was always an element of human adjustment in the LIBOR figure.
I am intrigued by the global faux outrage, however. Enemies of the City, I suspect.
ADE
I sorta feel like a bug on a top. The spinning around is neet, enjoyable even but What’s up with the wobble? Since I’m not a bug, I know what the wobble means. I just need to decide if I jump off or ride it down. Jumping off would leave me the illusion of control but I really don’t see anywhere to land. Riding it down would allow me to observe the collapse of a major civilization from the inside. I wonder if Historians 400 years from now will consider the LIBOR fraud to be important? Or is it a symptom?
wretchard you should demand royalties.
Is there a marketing opportunity for internet sales of Victory Garden kits?
49erDweet 1,
When the end truly is nigh the rational thing to do is to grab everything that isn’t nailed down, then pry loose everything that is loosely nailed down and then nail down any skirt that isn’t tightly wrapped. The Californictors may be acting saner than you think.
Let’s imagine we members of LRDG patrol in the 1942 North African desert. According to our manifest, we have 40 jerrycans of fuel, 10 of water and 20 boxes of rations in the back of our Chevrolet. We each know our share, and are happy as clams cause there’s more than enough for each.
But in reality some dope back at the base loaded some empties in each category. Or maybe some of the jerrycans have a leak. Maybe we have fewer of water and more of gas, or more of water and less of gas than the indicated proportions. Perhaps some of the 20 boxes of rations contain rocks, put there by a bedouin pilferer.
The point is that the actual load of our Chevrolet doesn’t match what’s on our list. Now the time comes to split off our trusty Willys jeeps taking our share of the rations, gas and water from the Chevy.
Only by a miracle will anyone get “fair share” if the loading is wrong. Maybe somone will take more food, gasoline or something. But most definitely, except by a stroke of luck, nobody will have what he thinks he has.
Now suppose I, Wretchard, was in a position to actually know the loading of the truck because while everyone was sleeping I couldn’t turn in and idly inspected the cargo. Boy was I surprised. But then I realized there was only enough water for one of us to survive. The rest inevitably would not have enough.
Should I exploit my superior knowledge? Ought I rearrange the jerrycans so that when I loaded my jeep the rest would get the ringers and I’d get the genuine articles? Now we live in a system where value is what it says on the quote, but suppose it’s not. Suppose that some financial articles were actually worthless while others had a true value? Should I exploit my superior knowledge?
When the manifest doesn’t correspond to the actual and when we account our wealth according to the manifest, in general what can you really say about the jerrycan of gas or water or the box of rations in front of you until you look?
Who knows, but when we look, if I have the Thompson and you’ve got the Webley I keep the water if I have it in the first place. If you have the water but the Webley, I still get the water. All I need is the Thompson.
I noticed that the “Economist” mentioned the first bomb. Fannie Mae and the US Subprime loans. They didn’t name names though Barney Frank and various democrats should have been brought up in my Opinion.
Actually I suppose the first lie was “everybody should own a home.” After all people who owned homes were better off than people who didn’t.
Now if I my paraphrase, it is like Reggie Middleton says, “They just keep slicing the pie up into smaller pieces, except for their own particular slice instead of trying to bake more pies.”
The problem the left has is they haven’t figured out who has the Thompson yet.
For that reason its important for the apparatus of the state to be under more or less democratic control when society is undergoing an economic crisis. It is important that when the merges happen, when things are written down and re-allocated that the process is seen to be fundamentally fair and legitimate.
It means nobody should hold the Thompson, or if somebody has to, it must be a party designated by all.
Contrary to popular belief, many revolutions don’t result in the equalization of wealth. They result in the expropriation of wealth. Robert Mugabe gets what he wants and everybody else gets the sweepings. Look what revolution did for North Korea. How did it turn out that way? Because it was the Kims who were doing the merging.
So Kim gets to ride the horse. The camerman gets to eat the horses**t.
When I’m truly suspicious I sometimes think that the current crop of politicians know better than we do that things are coming apart. It’s just that they want to be sitting up front with SHTF. So they play dumb and just try to fix it so the figurative Thompson is in their hands when redivision time comes along.
7. JFSanders
Vodka is the reason that the USSR took as long as 70 years to implode. The Russians were drunk and the dawning of the Worker’s Paradise seemed like only yesterday. When the vodka finally ran out – game over.
The U.S. equivalent of vodka is political correctness – much of the country is drunk on it and can’t see straight. When supplies of political correctness finally run out in the U.S. – game over.
In Canada we won’t see the crash because we will all be at the hockey game, eh?, along with Mr Reality.
Steve, I hear you. But Vodka being a chemical is bound by physics to have an effect upon the drinker. But the PC koolaid only requires the mind to believe for it to be so. I don’t think that the drying out party will be any less painful. I just want it to start so that I can see where the end of it will be and plan accordingly. To be more succinct, I do not and cannot have this crap dropped into the laps of my children and grandchildren. I will not shoulder this load onto them. I began to push the opposition back in 1991, I guess I will have to shove harder. Rip the damn bandaid off! Lets get this party started. We know where “they” want to take it and I don’t hold to the notion of getting punched first to make it fair. We let them have their shot for a hundred years. They blew it. Now it is our turn again. This time lets make it stick. Either that or screw it and go fishing. Oops, can’t do that fishing is soon to be illegal per new EPA/Fisheries regulations.
Nicole Gelinas wrote an article on LIBOR for The City Journal today: here it is.
“Another week, another reminder that the banks are still busted
“The West’s financial industry remains broken, and Western politicians continue to flail about in their halfhearted attempts to pretend that they’re confronting the problem. This week’s titan-turned-villain is Bob Diamond, until Tuesday the head of Britain’s Barclays Bank.
“The American-born Diamond ran the investment arm of the bank half a decade ago, when it consistently manipulated the London Interbank Offered Rate, better known as Libor—the interest rate that big banks report having to pay to borrow funds from global markets. If Libor is low, things are good; if Libor is high, things are bad. Libor helps determine the rate for $350 trillion in global bonds and loans, from floating-rate American mortgages to power-plant financing in Brazil.”
http://www.city-journal.org/mobile/story.php?s=8303
Holy smokes wretchard, you are not kidding when you talk about the concept of the doppelganger. The Belmont Club has a doppelganger – the Belmont Forum – see here
“The Belmont Forum is a high-level but deliberately informal body created in July 2009 when:
“the world’s major funders of environmental change research, and major international science councils, met at Belmont House, Maryland USA, to consider how best to align financial and human capital towards delivering the environmental science knowledge base that society will need in the 21st century.”
The US National Science Foundation and the UK Natural Environment Research Council manage the Belmont Challenge to lay out and mandate a Roadmap to ensure “equitable economic and social development”. The final version of the Challenge was issued March 2011.”
This particular gang of doppels is planning a downright sneaky attempt at a cultural transformation of society.
Let’s see, wasn’t there some new President in 2009?
I was talking to a client last year, he had lost a bunch of money in 2008, retirement funds by listening to an investment advisor and ignoring his gut.
He told of a niece who was working in London financial district. During a visit, he asked her what she did. She said she bought and sold $500 million in financial assets a day.
That tells me all I need to know about the system. There is no way she could know the value of these assets, whether there was any real value behind them, whether they were worth what she was buying or selling it for. The profits were in the volume, a tiny piece of each one, making rather large amounts for salary and profits at the end of the day.
There were two things I remember from late 2008, early 2009. First was the suspension of mark to market rules for banks. In other words the assets they held were worth what they said. The second was the TARP money, or maybe some Fed money to banks were to be taken by all banks so we would not know who needed it and who didn’t.
The purpose of both was to maintain a fiction. Without the fiction, the system collapsed as everyone pulled out.
I bought a new truck this spring and it comes with a temporary subscription of Sirius satellite radio. I’ve been listening to bloomberg radio, with the financial reports. I’m amazed, shocked, flabbergasted at how shallow and mindlessly cheerleading it is. Last week they had esteemed guest after esteemed guest saying that Germany just has to write a big check, and since they have to, they will, they were confident. The conference happened, some announcement was made about the potential of a big check, and everyone cheered. Solutions, good times. Half a day later someone from Germany says, hang on a sec, we didn’t agree to that. Then Finland says Hell no.
There is a merging happening already. The fake, two faced pieces of s**t who run Europe and Washington and London, people who are nothing, could not do anything in the real world, would die of starvation if some hard working people didn’t bring them food, are a perfect reflection of the system they created.
This isn’t going to end well. It may take a while, but the influence and power of these fools is already shrinking. This has been discussed here previously, the impossibility of central control and the gradual breakdown of all governmental authority at the edges. The edges are getting quite a bit wider all the time. But these fictions can be sustained for a long time.
“But operations on a database — any database — can only be safely performed if the data is left uncorrupted; and if the reconciliation process has integrity.
But if transactions are routinely and intentionally writing the wrong values into the database it eventually diverges from the objects which it purports to represent.
At some point the database becomes effectively worthless”
—
Thaddeus!!!
Mr. McCotter was running for re-election in a race that didn’t seem to be much of a contest, especially since he has carried the district since 2003.
But his front-runner status quickly evaporated after 1,563 of the 1,830 signatures he turned in to get his name on the primary ballot were found to be fraudulent. Only 1,000 were required.
Longtime Michigan elections officials called the level of fraud “unheard-of,” and the state attorney general’s office announced a criminal investigation into the petitions.
—
Mr. McCotter’s resignation has left his party without an obvious candidate in a Congressional district that would otherwise have been a Republican stronghold.
One G.O.P. candidate who will be on the ballot for the Aug. 7 primary is Kerry Bentivolio, who, according to his official biography, raises reindeer “trained to pull Santa’s sleigh.”
Hope Springs Eternal…
Derek@19:
Ah yes, those fools don’t realize that Germany is only well off in comparison, but not that it can’t afford to write a big enough check to cover the rest of the EU. They’ve had small and medium businesses move out to lower wage Eastern European countries and they have move stuff to the US also. On top of that they are having serious energy problems which will really bite this winter. They’ll have to import electricity, oil, and gas. Their banks are also carrying more bad paper than they should.
The Blue model is teetering on the edge all over.
It suited the politicians – Brown and Blair – to have Libor as low as possible because that would be the easiest route to get re-elected in 2005 – through a good old-fashioned property boom that lifted spirits. Gordon Brown, the Chancellor who had boasted of eradicating ‘Boom and Bust’ [always a notable feature of the UK's property based economy], had a special interest in the 2005 election – he would take over the leadership from Blair and become PM. He had already de-regulated the Banks in a way that neutered any effective regulation, producing a system that was designed not to work. He duly got the Boom – and Labour got re-elected. The City was encouraged to keep the financial party going. Wealth was encouraged by ex-socialist New Labour. Then in 2008 came the reckoning.
I am curious as to why anyone would choose to make this a problem now. Having a low LIBOR rate is good for everyone, as is continuing the belief in the system and values. If someone is trying to gain leverage over the banks involved, which are the most important in the world, by threatening to prosecute the bank managers, the must necessarily be very desperate to gain control since they are willing to play such a dangerous game and accept the risk of having $800 trillion in instruments become uncoupled from their assumed value. Interesting times indeed.
Bankers are getting shot behind the ear to distract the unwashed and the unknowing from looking at the politicians and pets who are dividing up what’s left of the stash.
I was reading an interesting gossip piece about John Corzine. He is in the Hamptons but he is off the A list parties. He is not getting invited to give speeches and comment on TV about the economy anymore. Since used to be a good old boy he probably won’t be prosecuted for ripping off all those farmers and ranchers but the elite want him out of sight.
Yankeefifth Shrugs!
Nocera: Libor’s Dirty Laundry
In 2007, as the financial crisis was gathering steam, banks also began submitting false Libor rates for a different reason. Libor, you may recall, was a measure that gave the outside world a sense of how much trouble the banks were in; the higher the rate required to borrow, the worse shape they were assumed to be in. So Barclays — with what appears to be the complicity of British bank regulators — started submitting rates that were lower than the reality. Its executives said the purpose was to keep Barclays from “sticking its head above the parapet.”
Even now, Barclays justifies the latter rationale as being a kind of emergency measure brought on by the financial crisis. But the bank is wrong about this. Submitting false data, for whatever reason, is a violation of the law — not to mention a fundamental abuse of trust. Once again, it leads one to believe that bankers feel neither the constraints of the law nor of morality.
Which brings me to the second big surprise.
Britain and America have reacted to the Libor scandal in completely different ways.
Britain is in an utter frenzy over it, with wall-to-wall coverage, and the most respectable, pro-business publications expressing outrage. Yes, Barclays is a British bank, and the first word in Libor is “London.” But still: The Economist ran a headline about the scandal that read, in its entirety, “Banksters.”
Yet, on these shores, the reaction has been mainly a shrug.
Doug
You are the old Doug of Hawaii, right?
Assuming you are, the shores to your immediate East already knew what everybody in the game knew, the London Interbank Offered Rate is meaningless at the close of business, as it is no longer on offer.
As the old joke goes: two quants talking to each other: Q1 “So LIBOR is a Martingale, then? Q2: “Yes, your guess is as good as mine”.
Everybody playing this game knew LIBOR was an estimate. Its use as a benchmark factored in the estimate.
The shrug from your Eastern shores reflects this.
I think the faux outrage from the UK Gobmint reflects the crazy belief that the Gobmint matters.
And that Banksters are the new Jews.
ADE
“Just what is holding up the dead man here?”
A mixture of Complacency;
“In all life one should comfort the afflicted, but verily, also, one should afflict the comfortable, and especially when they are comfortably, contentedly, even happily wrong.”
-John Kenneth Galbraith
and optimism;
“Hope is definitely not the same thing as optimism. It is not the conviction that something will turn out well, but the certainty that something makes sense, regardless of how it turns out.”
-Vaclav Havel
Complacency because the man has never been dead before so obviously he can’t be dead now.
Optimism because America has been through tough times before and emerged better off. That is the root of American Exceptionalism and why the left attacks the concept.
On the other hand (Truman’s one armed economist is still MIA) any measurement of anything depends on the standards one uses. Doom and Gloomers use an idealized perfection to measure America. Since only a god is perfect, America fails against that measuring stick.
When measured against other nations or cultures, America is king of the hill.
D&G’rs say the US economic power is shrinking. I say it’s still number 1. D&G’rs see our military being starved, I see the best troops EVER using the most advanced weapons and don’t worry to much. America has long had a death grip on the World’s culture. Everybody wanted to ‘be like Mike’ in their Levis and Nike’s while listening to Michael Jackson. I’m more worried about losing the culture wars then the economy.
The US economy is the locomotive that pulls the train. It may be going uphill or down, fast or slow but it is still in front.
Libor doesn’t matter. Labor is well known by all who are aware of it – as a spread over 10 year treasuries, for example, on their floating rate bonds – to simply be a little tax banks charge one another and their customers. Nobody cares; the only thing that makes it significant at all is the fact that zero fed funds rates and 1.55% 10 year US Treasury rates mean 0.25% 3-month LIBOR is approaching materiality, when previously no one ever even bothered to notice it. This would be like someone to have been found guilty of “fixing” the Fed funds rate. In practice, it’s a combination of practice and active market-making anyway, so how are they to distinguish market-making among 7 or 8 huge banks, that dominate by far the millions of daily transactions in the global financial markets, from collusion in a price-fixing scheme?
What this really reflects is the fact that anti-bank animus is a symptom of the electorate’s failure to understand the economy they live in – particularly the fact that the economy is not some set of theories or operations within a system but a half-false and incomplete image of the bazillion interactions of hundreds of millions of people. If you did not have banks, it would be necessary to invent them, and among banks and customers you will need a tiny LIBOR-like transaction tax that will accrete like bacteria of which you are almost entirely unaware.
A misallocation of resources works like a tax, just moving you off optimal allocation of resources, which doesn’t matter much if it’s not a huge amount (maxima being pretty flat).
You’d want to fix it adiabatically, with small changes back to the correct value, if you could.
No point sending shockwaves into the system.
In my not so humble opinion, the two key concepts in the LIBOR scandal are trust/confidence and conspiracy/raqueteering.
In the simplest most high level, the political class conspired with the bankers. The politic class got ‘good times’ and bankers got paid by corrupting the signal. This took many forms, eliminating glass steagel, CRA and its iterations, banking regulations, the fed blowing monetary bubbles, etc.
When the truth started to come through it became vital that the con keep running. Given that they were swimming naked, they couldn’t let the tide go out. That is where the LIBOR manipulation comes in. As trust in the system was collapsing, they had to keep the con going. Because a fiscal policy response (lower gov’t spending, true austerity, normal IMF prescription) was not going to be on the table, the only ‘response’ was ‘monetary policy’…for the Fed (and other central banks) to lower interest rates. However, they only directly control the Fed overnight rate. They hope that influences the other short term rates (LIBOR), and hope the short term rates influence the long term rates.
The problem was in the midst of the crisis, banks knew all the big players were swimming naked in an outbound tide. So they didn’t lend to each other. They kept their money as central bank excess deposits, because they both didn’t trust the other guys, and they couldn’t afford to put it at credit risk because they would need it if their books actually were marked to market. So the actual rates ‘highly rated’ banks were charging each other were much, much higher than where the Fed was putting short term rates. This could not be tolerated, because it highlighted that:
A) the central bank lost control of interest rates (LIBOR >> Fed funds rate)
B) the interbank market was locked up, a disaster
C) The ‘high’ ratings were worthless, the banks didn’t trust them
D) Banks didn’t know precisely what the other guys had, but they were hoarding capital to deal with their own pile of dodgy assets.
So the solution to all of these problems was…there wasn’t one. They had to lie about it to keep it from all coming apart at the seams. To keep it under wraps. So they lied about the LIBOR rates. And they all did it (this is NOT a Barclays thing), and they all did with the knowing comlicity of the regulators who were supposed to oversee them. They turned LIBOR into LIeBOR for the same reason the TARP money had to go to everyone whether they needed it or not. They could not let Wile E. Coyote look down.
The biggest issue is the derivatives, which are mostly interest rates, and most of the interest rates are tied to LIBOR. They are so huge (and often with large implicit leverage) that once a domino or two falls, it will pull all the others with it. Why is Germany bailing out Greece and now Spain? Because they do not want that first domino to fall. The banking system is like a long line of drunks climbing an icy mountain path who are all tied together. Except there is no cliff wall…it is a narrow path with plunges to their death on both sides, inflationary death on one side, deflationary death on the other. In theory, being tied together means if someone slips, the others can pull him back to the path. In fact, if someone goes, they all go.
Please note this comports with other evidence. For example, Why did the Fed do QE and QE2? Because they low fed funds rate wasn’t lowering interest rates, they lied about LIBOR, but they couldn’t afford a large disconnect between where assets like T-bills were trading and where they ‘should be’ trading based on the corrupted LIBOR…so they made them trade where they said they would by buying them at that price…higher than anyone else in their right minds would pay. Why are they doing twist? Because once short term rates were plunged to zero, the long term rates were showing reality. So they started buying long term paper to force their price up and rate down. Why were MTM rules suspended for banks? Because the regulators did not want to show that the banks were bankrupt. Why are their still massive excess reserves at the Fed? Because banks still don’t trust each other, and still know they will need the money to deal with their own problems…and the Fed is the only ‘safe’ place to keep it. And by safe I mean counterparty risk, they are being raped by (hidden) inflation.
Just like the rest of us. The banking system is broken, and everyone in the know knows it. There are more claims on wealth than wealth to be divided. The bankers are happy to keep delaying the reckoning, because they are making sure their slice of a shrinking pie is getting bigger and bigger. Wile E. Coyote ran off the cliff quite a while ago, and the gov’t regulators are all trying desperately to stop anyone (here’s looking at you, Yankeefifth) from looking down.
Beware counterparty risk. Beware what the ‘powers that be’ will do try to keep the system together. There is a powerful tension between the deflationary effect of the economy collapsing, and the inflationary effect of money printing. The outcome is very, very likely to be very, very ugly. But maybe, just maybe, we can thread the needle and come out OK. Wile E. Coyote can run back and forth across the Grand Canyon so long as he doesn’t look down, right?
Random fact: BofA moved $53 trillion notional derivatives from Merril Lynch into the FDIC insured BofA subsidiary because their counterparties insisted on better credit. Thank you FDIC! Which as of April has only $11 billion left (0.17% of insured assets) in its insurance fund. Despite having a legal requirement of 1.35% of insured assets. The fund lost $88 billion in the last 3 years, but they project they will only lose $12 billion over the next 4 years. Wait, 12 is bigger than 11? Oh, well in that case, we will just get more money from already bankrupt banks.
At least Europeans know their banks are not insured. Americans think they are. How comfortable are you that the banks will not lose more than 0.17%? Are your bank’s assets are worth 99.83% of their deposits? Is everyone else’s?
If the Fed prints, the US Government can always make sure you get your dollars back. But they can’t insure they will be worth anything.
Sorry for the long and pessimistic posts.
Derek @ 19 – Well, all I get to listen to on the car radio is the CBC, but the same happyface phenomenon is there too. Yesterday afternoon I was listening to the financial news on the the hour, and they mentioned how dismal the jobs report was for June in Canada: 7,000 new jobs. In the very same broadcast, they also mentioned the U.S. jobs report for June: 80,000 jobs. Canada’s population is 1/10 that of the U.S., so the two reports were basically identical. Yet the same report bemoaned the dismal state of Canada’s economy while brightly chirping that the American figures showed that the “recovery” was still progressing slowly. Does it have anything to do with a Conservative government in Ottawa and a socialist one in Washington? It certainly has nothing to do with reality.
Wretchard – “That is another way of asking: how do the records get merged? And the answer unfortunately is that it usually depends on who is holding the revolver — on who’s doing the merging.”
As you have alluded in the GM deal, we shall see how the database is merged. If an asset belongs to the elite, they will get first count. If it is not theirs, it will be redistributed to the constituency. Data-debased.
The demographics of Orange County have been changing. Registered democrat voters have increased 17% + in the last 20 years. Add to this the roles of the illegal voter. Incidentally the Hispanic vote has more than doubled in the same time span. Hispanics vote for their countrymen and vote for the progressive ideals of their poor families back home. This is precisely what the rest of the nation will look like in another 20 years. Invasion of the body snatchers. But instead of pods there will be the discarded corn husks of the new Tamale. Our new hosts will not be magnanimous in their new role. The left predicts the end of the US empire, the rise of China and the end to the Euro-centric demographic. Then they set out to implement it in government policy.
Total transformation is the feature. Control of the electorate is better than campaigning and who easier to control then an indigent house guest?
So what we have here is a galactic size trust bubble. With the moneyed cabal and the elite political class furiously pumping to keep the bubble from deflating.
Best get your self sufficiency up and running. Time to go local is now. Move your paper assets to land and producing hardware. Take physical possession of said assets and be ready to band together in times of chaos. Know your neighbors and their tendencies.
Like my Dad the engineer says, “It isn’t the fall that kills you. It is the sudden stop at the end that does.” Pop your chute early so that you have options on where you land.
The fireman is shoveling coal furiously, yet he isn’t getting any steam. The boiler will meltdown soon and the locomotive will stop.
I do not worry for “The American Empire” it will have to take care of itself soon. I do worry about our govt and the criminal polity that controls it. We have become the Fascist state that we fought against.
Man, for all of his intelligence and reason has shown a serious defect in his makeup. This will not be controlled without virtue and morality. The pendulum will swing the other way someday and in doing so will cause the destruction of many a soul.
Anybody up for a space trip. I hope they name the first colony ship after the Mayflower.
OT, but:
I’m not a fan but Clubbers should check out the op-ed piece in today’s WSJ by Peggy Noonan, an homage to America, esp the part about Henry Kissinger.
(maybe she’s trying to make up for going gaga and all but dropping her drawers for Obama a few years back but, me, I’m still nursing a grudge—still, it’s a good piece.)
By Matt Taibbi, Rolling Stone, June 21, 2012 11:20 AM ET
Someday, it will go down in history as the first trial of the modern American mafia. Of course, you won’t hear the recent financial corruption case, United States of America v. Carollo, Goldberg and Grimm, called anything like that. If you heard about it at all, you’re probably either in the municipal bond business or married to an antitrust lawyer.
Even then, all you probably heard was that a threesome of bit players on Wall Street got convicted of obscure antitrust violations in one of the most inscrutable, jargon-packed legal snoozefests since the government’s massive case against Microsoft in the Nineties – not exactly the thrilling courtroom drama offered by the famed trials of old-school mobsters like Al Capone or Anthony “Tony Ducks” Corallo.
But this just-completed trial in downtown New York against three faceless financial executives really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.
The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America.
The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from “virtually every state, district and territory in the United States,” according to one settlement. And they did it so cleverly that the victims never even knew they were being cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime.
***
The above is a quote from “Before it’s News” –but do take a look at the links alongside the text. “We’re Doomed” –right?
Also around the same time as Taibbi’s global people’s-channel info-distribution of the Carollo trial, and as the LIBOR scandal breaks, the NWO (okay, McGraw-Hill, owned by Standard & Poor’s, which led the AAA rating of the subprime trash, and downgraded US debt last August to the tune of 1000 lost DJIA points for the pleasure of the hedge-shorts, and is controlled by a Rothschild wing) announced the glowing initial results of a last November-formed enormous new central power (in somebody’s information-weapon arsenal).
http://www.bing.com/search?q=combine+mhp+cme+sp+dj&qs=n&form=QBRE&pq=combine+mhp+cme+sp+dj&sc=1-27&sp=-1&sk=
***
One notes the latest domino is RBS –the Royal Bank of Scotland. This jogged an ancient memory (well, September of 2009), which mentions pointedly the partnership through the shank of the decade of RBS chief Peter Sutherland (also then-head of Goldman Sachs Europe –GS, whose largest shareholder is Japan’s acknowledged Yakuza bank, Mitsui Sumitomo, which oddly has a ten percent share of BP’s Macondo disaster, as well as the heavy infrastructure contract for Vlad’s baby, the Sochi Olympics), and one Tom Donilon, a backroom Democratic party mechanic of notable diligence, given credit as he is (here and there if you look) for among other things shielding Fannie Mae from interference through her zoom years of destructiveness, and prior to that for designing several key elements of the Bosnian War and the NATO expansion eastward –the two western initiatives, as it happens, that brought Vlad Putin to power –more or less permanent power –over the pitiful, short-lived grasp of the endlessly put-upon Russian people’s attempt at representative government.
Oh, and that same Tom Donilon is now President Obama’s National Security Advisor.
When you consider the Donilon record of Titanic (capitalized, like the ship) flops, he really embodies, doesn’t he, a testament to America’s generous capacity to underwrite second and third and fourth chances, so long as one earnestly strives toward a definite end. Perhaps i should say ‘goal’ rather than ‘end’, so as not to confuse with anything silly, like say, Donilon’s ‘end’ being the end of the system in which he himself so freely continually miraculously bounces back from his own hand in state disasters, whether obvious now, like Fannie, or still emerging from the obscured, like the utter –deliberate? –handover of the signal event of the post WWII world, the fall of the USSR, to a transatlantic shadow government AKA organized crime.
As we all know, it is not just LieBOR. Government Media keep pumping out stories about 8% unemployment, when we all know that real un/under-employment is much worse than that. The Political Class prints money, which makes the reported GDP go up, ending the Recession. We really are flying blind. Not just us peons — the Political Class too. The only numbers they have to try to run their Fascist state are the same junk numbers they provide to us.
So what does the real economy look like? Even up close & personal, it is very hard to tell. California’s economy is reportedly a shambles. I had an opportunity to observe it first-hand recently during a trip to San Diego. Very busy airport, being expensively reconstructed. Hard to cross the street because of all the expensive lumbering German battlewagons being driven around. Packed freeways. Busy marinas. So is California a basket case or not?
Looking on the bright side, whatever happens next is going to be a big surprise — to everyone! Because no-one knows for sure what is going on.
Welcome back Buddy.
“The net result of dishonesty in the financial system is that parts of it become grossly overvalued and other parts vastly undervalued.”
The current 2012 cost of minting a US penny is now 2.41 ‘cents’.
If you base the relationship upon the penny, the real tangible coin and not the cent which is a unit of measure, that means a paper dollar is now worth about 41.5 pennies. In 2005, the cost of minting a penny was .97 of a cent.
http://www.snopes.com/business/money/pennycost.asp
D @ 40: The current 2012 cost of minting a US penny is now 2.41 ‘cents’.
huh. well, as the snopes article says, it’s not the overall cost of the coin that really matters – but the article underplays the apparent fact that even the current 98% zinc coins are now worth more as base metal than as coins, that *does* matter some, even at modest premiums.
of course the real solution is to revalue the currency, adjust prices down by a factor of 10, or maybe 20, or maybe 27.1828, it really doesn’t have to be an integer much less a power of ten. keep all the same coins, currency. but such a revaluation causes such dread and confusion, it may never happen. too bad, it makes the coins in your pocket worth 10x more, etc.
or, get ready for little aluminum Lincolns and why not, except for some antique penny slots in Las Vegas it’s been twenty years since most vending machines took pennies so the adjustments should be minimal.
ps – what ever happened to the reformulated nickel coin that I thought as coming out this year, because the current copper/nickel base metals are worth about 6 cents and no doubt the total cost of production is a couple of cents higher?
The Pecora Commission beginning in March of 1932 took Citibank to task so sternly it needed the prints of darkness Bill Clinton to bust it loose from the strait & narrow.
Ferdinand Pecora was an assistant D.A. for New York County, hired by the senate banking committee (which had a longer title then, included the word ‘currency’) to pen its appointed commission’s report of the financial system’s part in the inflating of the bubble that had busted nearly three years earlier in October 1929 –some time before the actual ‘Great Depression’ with its one third unemployment was becoming recognized and named –and which was still in effect –with 20% unemployment –on December 07, 1941.
Pecora read the notes he was to organize, and, answering to the angel on his shoulder, because he could’ve just done what he was hired to do and no more, begged the committee for another month of the hearings. Pecora himself took on the titans of the financial system in this add-on round, and he started pulling out some wake-up headlines to the point the commission became branded with his own name, and resulted in new law enacted that became the foundation for the coming half-century of growing prosperity –of spirit as well as material.
The great bulk of the ‘financial reforms’ between the (Citibank & Clinton pushed) Glass-Steagall gutting in the mid-1990s all the way up to the (fine-tuned-for-the-Bank Panic of September 2008) SEC rules changes of 2007, were actually nothing more than the quitting of the work of Ferdinand Pecora –who finished his working career as head of the newly-created SEC.
A good question for folks to mull, as they, er, we, finish off the can o beans around the campfire and doze off dreaming of maybe catching a rabbit tomorrow, is, “why did we have to do it again?”
***
(Thanks, wretchard –been reading you, just not commenting much –the stable here covers the angles so quick i can’t get my goose quill sharpened before i’m redundant again –boo hoo)
Wait a minute — You mean the Harry Potter books were fictional?
oldsalt – “After all people who owned homes were better off than people who didn’t.”
It is true. In fact, wealthy people often own thorough bred horses as well. The state ought to offer incentives to get ghetto dwellers to pool their resources and buy these horses. Rich people own horses, swim in pools, and go on cruises. Maybe that is why they are finding EBT cards used on cruises. It is the first step to bringing prosperity and rich things to the indigent. Homeless people should go yachting, rich people do.
Hi Luddy!
Correcting the Record
Crimson with embarassment:
Harvard Picks First BGLTQ Director
CORRECTION: July 3
An earlier version of this article used the pronoun “she” to refer to Vanidy “Van” Bailey, the newly appointed director of bisexual, gay, lesbian, transgender, and queer student life. In fact, Bailey prefers not to be referred to by any gendered pronoun.
—
“It” works.
…if Make-work counts.
—
Buddy: You can’t sharpen a cooked goose.
Kinuachdrach @38,
San Diego airport, Lindbergh Field has been a basket case for a long while. Efforts to relocate it from under the shadows of downtown included Brown Field where the pattern would bring flights over Mexico (what could go wrong?)and Marine Corps Air Station Miramar which could have been moved during the BRAC decisions. Instead voters approved dismantling El Toro that remains unredeveloped in a blighted area off of I15 and keeping the only practical location for an international airport in San Diego off of the options list. Incidentally the trolley system that branches south and east from downtown was kept from running to the UCSD campus because, as a resident of La Jolla put it, they didn’t want that kind of people coming to there town. The new airport would have increased traffic over La Jolla and, not coincidentally, most of the elites of the San Diego City Counsel live in La Jolla. It is nice to live in an area where the peons that you represent are excluded by cost and geographic inconvenience.
#41 Josh,
According to the wikipedia article on Nickel (United States coin)-
“Congress passed the Coin Modernization, Oversight, and Continuity Act, directing the Mint to explore alternatives to the present compositions of the six denominations, from cent to dollar. In 2011, the Mint awarded a contract to study the issue to Concurrent Technologies Corporation of Johnstown, Pennsylvania. Although the contract does not expire until 2013, under the legislation, the Mint is to provide a detailed report to Congress and to the Treasury Secretary by December 14, 2012″
In other words, you still have time to obtain some of the old, valuable nickels before Gresham’s law makes as rare in circulation as old 90% silver coins.
Hedge fund manager Kyle Bass- who made a lot of money by noticing that subprime mortgages were likely to default- has done exactly that:
http://www.zerohedge.com/news/some-words-advice-kyle-bass
From that link, quoting Mr. Bass:
“Actually, it’s very difficult,” he said, and then explained that he had to call his bank and talk them into ordering him twenty million nickels. The bank had finally done it, but the Federal Reserve had its own questions. “The Fed apparently called my guy at the bank,” he says. “They asked him, ‘Why do you want all these nickels?’ So he called me and asked, ‘Why do you want all these nickels?’ And I said, ‘I just like nickels.’”
Yep. Nickels. What’s not to like? And they’re available at local bank branches for two dollars a roll, while they last.
AM, backatcha-
Doug, thanks, reminded me of that old aphorism, “Always Have an Old Aphorism”
Re that Pecora Commission on the 1929 bust, for the 2008 bust Pecora would have had Chris Dodd instructing him. Instead of a dozen pages of new statutes that cleaned up the system for 50 years, he would’ve gotten 2,700 pages that not only didn’t solve the market’s problem with TooBigToFail, but DID solve the TooBigToFail’s problem with the market –that 30% of it was still owned by 8000 small banks. The JustHereToFlails.
Interesting analogy, which — as a DBA myself — I can appreciate. But it isn’t a perfect analogy, at least not for someone who, like myself, is mostly a production DBA (who performs some development work) rather than a development DBA.
Put simply: there is a difference between data integrity at the database management system (DBMS) level, and data integrity at the human level.
As a production DBA, my primary chore is to maintain data consistency from a DBMS perspective, not necessarily from a human perspective. Therefore, I’m very concerned about whether there are “torn pages” — data blocks that have been somehow physically stripped of data, usually from an unscheduled power outage. And I’m very concerned about whether the DBMS can make sense of all the ones and zeros from a definitional perspective. When we perform data integrity checks, we’re not usually concerned with whether the data makes sense to the users, but with whether it makes sense to the DBMS. As they say, garbage in, garbage out. DBAs don’t care if the database contains garbage, per se. We just want to ensure that the garbage wasn’t created by our own negligence.
If the garbage was entered by the users, that falls under another rubric generally known as “their problem, not mine.”
Which is to say, if the users want to make up fiction and store it in their databases, then as long as the DBMS repeats the same data back to them accurately on demand, we’ve done our job. They want to store fiction, that’s okay with us. The DBA has no interest in whether the sort of data integrity you speak of exists, Wretchard. Our job is to make sure the database contains whatever was stored there on purpose by the users, whether fact or fiction.
The CIO (Chief Information Officer), of course, might have a different perspective.
Only once or twice in my thirty-year career as a DBA have I ever been asked to alter the contents of a database or a report in a manner that I considered unethical. When that happened, I simply explained that I don’t make any changes to the database contents that I’m not comfortable prefacing with the words, “Your Honor”.
Here’s a graph of the S&P 500 vs CRB Index vs Crude Oil: over time all three indicators move together. this chart only goes through oct of last year.
http://www.businessinsider.com/looking-ahead-to-the-next-oil-price-spikeand-the-threat-of-war-2012-7
Here’s the Initial jobless claims vs. the S&P 500.these two also move together perfectly. this chart is current.
http://www.businessinsider.com/weekly-claims-vs-sp-500-july-8-2012-7
What’s the point of this?
There’s plenty of true price discovery in the real economy.
What distinguishes the real economy from –for lack of a better term — the unreal — economy.
It appears that the answer is real estate.
What distinguishes the real economy from –for lack of a better term — the unreal — economy.
It appears that the answer is real estate.
Real economy, real estate; unreal economy, unreal estate. “In the beginning was the word”.
On the TV screen, i watched the gaggle of reporters and the candidate shooting the breeze informally as the candidate on foot moved through. It was sometime around the Joe the Plumber episode. They were outside somewhere, under a bright sun, the mood was jolly, the candidate was quick, feeling cocky and spontaneous in the picture. Among the shouted questions, Obama was grabbing a few and tossing replies rat-a-tat. ‘The McCain camp says you don’t love America’ someone in back shouted. Obama, grinning broadly, tossed back “America’s got a lot of nice real estate!” Then a few laughs as another question shouted in, as the ordinary TV campaign update minute report trailed off without comment. I never saw it again, nor ever heard it mentioned. Ergo, not even sure anymore i really saw it, to be honest. I think i did, though. Of course it could have been a joke playing off the ”Bush admin is really making a mess” theme, and not necessarily the premise of his marching orders.
c @ 50: It appears that the answer is real estate.
Any real asset, any commodity, any productive factory. I don’t know why you would say real estate is a generic answer, when real estate prices have been falling in concert with those others.
btw, a lot of skepticism in that first post regarding fracking. I hope they are wrong. More of the expense of fracked oil may be in the labor to drill wells, but what of it, that makes for more jobs!
51. buddy larsen
Nice to see you posting again. Yeah, I thought I went too far with that biz about real estate. Except that its bad real estate loans that are cooking so many books. However, there’s a lot of government debt obligations too that are unsustainable. So its not just real estate.
52. Josh
I don’t understand the skepticism regarding fracking. the baaken formation just passed Alaska to make North Dakota now become the 2nd largest producer of oil in the USA behind Texas. There’s three other fields of similar size or larger in California Ohio and northern Louisiana/Arkansas and a half dozen smaller ones spread round the country that are now gearing up for production. It took only five years from a standing start 2006 for fracking natural gas to totally glut the market for natural gas and collapse its price. As a result much of fracking now is for oil not natural gas. So its hard to see why a similar result will not happen with oil has has happened with natural gas. Especially since there is now plenty of evidence of that happening.
I saw T Boone Pickens on TV the other day. He said, there is a pretty large change over of big vehicles to natural gas going on now. He said the change could come faster–say within three to four years with government help. But even without government help–the change will happen–but it will take 7 to 8 years for the big change to be complete.