The Mortgage Crisis

Clayton Cramer discusses What Went Wrong

Cramer vs. Obama

Jim Cramer on the reception he has received now that he's dared to criticize The One.

Obama is not E.F. Hutton

He's not the best person to talk about the stock market, and people are noticing.

I realized that in the White House, Obama doesn't deal with what I do: Scared secretaries with tears in their eyes coming in to ask for advice when they see 401-K statements down by 25 percent since Election Day.

....

It suddenly became obvious that the President knows nothing about the markets and so has no awareness of the enormity of the problem.

....

Obama's distance from the concerns of many Americans, his ignorance about markets and his hesitation to see America as a land with a bright future, all has changed his relationship with many millions of people.

Voter's remorse strikes again.

The Obama Market?

Comments at Cheat-Seeking Missiles.

The market's down $3300 from October 8, when it became apparent Obama was going to win the election. The Wilshire 5000 is even worse.

I used to think blaming the economy on the president was a cheap shot … and I still do.  This fall is part the result of Dem policies on housing and mortgages crafted while Obama was still snorting coke in high school, and excessive spending by W and Congress.  And Wall Street/Main Street is certainly no more enamored with Obama than it is with Nancy Pelosi and Harry Reid.

But my numbers show conclusively that the American voters were wrong when they decided to put their bet on a spend-crazy Obama who said before the election that he would not cut a single spending program despite the worsening downturn - a promise he's kept. 

Wall Street is not buying the Obama spin, just like it didn't buy Carter 30 years ago, despite his popularity. And Wall Street won't buy the spin, ever.  It will buy - or sell - based on real, not political, results, something Obama has never delivered in his flighty career.

Market failure, government failure, and meltdowns

At Distributed Republic. Worth reading.

This suggests to me a considerable degree of confusion regarding how markets work, when they don't, and when we can expect government to do better. Hopefully I can shed a bit of light on these issues.

Market failure is a real phenomenon. But it's a phenomenon that's fairly well understood. Markets tend to fail in predictable, well-defined ways. Specifically, they tend to fail in situations where people have an incentive to act in ways that produce large negative externalities, or lack incentive to act in ways that produce large positive externalities.

....

This time, a bunch of really smart people acted in ways that were—in retrospect, at least—very clearly contrary to their own self-interest. And in the process they ended up screwing themselves over. If you're not confused by this, you're either better informed than I am (and I humbly request that you enlighten me with a comment), or you're not paying attention.

When a bunch of a really smart people fail to look out for their own self-interest, this isn't something that can obviously be fixed by more regulation. Politicians and bureaucrats aren't any smarter than the people on Wall Street. And they clearly don't have nearly as strong an incentive to prevent financial institutions from going broke as do the people whose money is actually on the line. [Emphasis added]

Note: "This isn't something that can obviously be fixed by more regulation". 

When people blame the melt-down on "deregulation" or lack of oversight, I'd like them to specify which regulations would have prevented it.  What precise actions should have been required, and from whom, that would have stopped the melt-down?  Or alternatively, what precise actions should have been prevented?

If a critic of "deregulation" can't specify a specific action, he can't make the case that lack of regulation is to blame.

GM -- Going Moribund?

Rick Moran at The American Thinker has spotted a piece explaining why letting GM go bankrupt might be the best solution.

 

Eleven reasons to oppose the bail-out

At least to oppose bailing out the Big Three automakers, from Countercolumn:

1. It would be illegal under the WTO laws we agreed to.
2. Detroit should have made better cars.
3. Detroit's workers priced themselves out of all reason.
4. Counterparty risk. Goldman Sachs and dozens of other financial institutions relied on AIG to make good on any number of transactions. Had AIG collapsed entirely, they threatened to destroy entire industries.  Toyota, Honda and Hyundai have no similar reliance on Ford or GM. If GM should fail, the rice burners stand to GAIN market share.
5. Detroit's PR people are arguing all they need is a "bridge loan." But I don't see the path to profitability - ever. If it's a "bridge loan," it's a "bridge to nowwhere."
6. This is largely a battle over pension funding.
7. The Big 3 have been on notice to improve their offerings for some time.
8. The labor unions made their bed, tying up company productivity with stupid union practice over stupid union practice, and by restricting the free market for labor.
9. If we have 25 billion available, why not use it to buy equity stakes in the Big 3 and then transfer ownership directly to the unions? Would they be happy with that deal? Why or why not?
10. If it's a bridge loan they need, why is no private lender willing to make the loan? Answer: Because repayment is not secure.
11. Those plants and workers don't just vanish into thin air. They could be sold to the rice burners, or to new enterprises. If not, then the lack of salvage value is an argument AGAINST a bailout, not FOR it!

OSC on Journalists

Here's the link to OSC's piece on journalism today:

If you at our local daily newspaper continue to let Americans believe --and vote as if -- President Bush and the Republicans caused the crisis, then you are joining in that lie.

If you do not tell the truth about the Democrats -- including Barack Obama -- and do so with the same energy you would use if the miscreants were Republicans -- then you are not journalists by any standard.

You're just the public relations machine of the Democratic Party, and it's time you were all fired and real journalists brought in, so that we can actually have a daily newspaper in our city.

Mortgage crisis and information

Davydd at Big Lizards attributes the mortgage lending crisis and its spin-offs to a critical shortage of information in our economy.

What has actually failed is the world information supply. Simply put, everything related to finance, to trade, to buying and selling -- in short, everything connected with any kind of a market -- depends upon access to timely, honest, accurate, and believable information (hereafter "THABI"). For an example I have used before, you cannot buy a car based solely on a grainy picture in a newspaper, because you cannot put a value on it; does it even have an engine?

....

That is exactly what has happened and is still happening today, all around the world: a global shortage of THABI, of timely, honest, accurate, and believable information.

This is caused by the lack of a particular kind of regulation, one that every economist, from Keynesian to libertarian (Austrian or Chicago-school), agrees we need: the THABI requirement. Like a fair, equitable, and trusted civil-court system, access to timely, honest, accurate, and believable information is a fundamental requirement for a market even to exist in the first place. This is why the market cannot itself correct for this problem: THABI is a lower, more fundamental "layer" than the market; the market sits atop THABI. Therefore, in the absence of THABI, the market cannot exist... hence cannot correct for the lack of THABI.

....

As the market is unable to function without THABI, it cannot function to restore THABI. All that information must come from somewhere else; and the only "somewhere else" that can act quickly enough to stave off a global depression is the State. Because the State functions both within and without the market, it can force changes even when the market is stymied... just as it takes a State to enforce the decisions of a civil-court, because only the State can step outside the market to seize by force the bank accounts of those who flout the court's decision.

The direct injection of liquidity by Treasury buying equity is also outside the market, because that money is extracted from people by force, in the form of taxes. But at the core, even this direct investment is an attempt to buy time to complete the "transparentizing" (horrible neologism, I know) of the toxic assets -- the recreation of the information that was lost by multiple unregulated securitizations of massive collections of mortgages.

Once the THABI has been restored to the mortgage-backed securities and other instruments, the market can reboot itself:

1. The assets can be valued;
2. They will all have some nonzero value, because no mortgage is worth nothing (if nothing else, the land itself has value);
3. All will be saleable, though often not at as high a price as the financial institution purchased them;
4. Each institution will thus be able to figure out how big a write-down it must take... and whether it can even stay in business or needs to sell itself to another institution.

There... that's a market! With the restoration of the missing THABI information, the market can reboot, and the catastrophe will be averted. So long as partial-nationalization of the banking industry lasts only long enough to retransparentize the toxic assets, thus allowing the market to begin functioning again, it will be an acceptable, even necessary intervention.