CNBC "interview" with Nouriel Roubini and Nassim Taleb. Interesting because I think these two have correctly understood the financial situation and are able to articulate the solution. And the CNBC people demonstrate the sort of mentality that runs through at least some of the financial sector (and most of the major media) that has created all these problems. It's just amazing how dumb the hosts are (and yet, perversely, so arrogant at the same time!)
the kids have to fend for themselves - Skinny 2-10-2009 9:20 pm [add a comment]
Yes, Stiglitz is good too. Here's another of him on CNBC, although I haven't even had time to watch that one yet.
The broad outlines appear clear to me, but there's so many details that are not. The big banks are apparently insolvent. Krugman, who I've been disappointed with for backing TARP so strongly, was on The Newshour with Jim Lehrer last night saying some very hard things, including "all the big banks are insolvent." From my vantage point this message has finally broken through to the mainstream. Good.
The next step seems largely agreed upon, which is some sort of government organized bankruptcy. This will involve some sort of at least temporary government control of these banks, so will be "nationalization" in at least some sense of the word. Equity (that is stock) holders will be completely wiped out. Bond holders become equity holders. Some new capital will have to be injected (hopefully at that point and *not* before like the TARP give away.)
Something along this line might work, but will be very painful. One issue is with wiping out stock holders. This seems fair to me since nobody had to invest in these banks, and anyone who did was free to do the research and see that they really weren't good investments. So caveat emptor. Unfortunately a lot of funds, especially things like pension funds, are invested in banks. So it's not like wiping out stock holders is just damaging rich guys on Wall St. A lot of teachers and government workers and other people who can't afford the loses, will see their pensions devastated. And so we'll have to then help those people. But still I don't see any way around it.
The other unresolved issue for me is pricing. This is the same as Geithner's "stress testing" he talked about in his plan. We go into the banks, open the books, and figure out what they are really worth (or, how insolvent they actually are.) This is the key to restoring confidence in the market (in other words, this is the key to restoring the markets.) But pricing these complex synthetic mortgage products is going to be difficult. I haven't heard a plan for how to do this that doesn't open up a strong possibility of the prices all turning out to be $0. (Or, in other words, this is a tough market to price things in.) Still, it's the market we have, so I think we should mark the assets accordingly. But then how do we untangle who actually holds all these mortgages?
Tough stuff. There's going to be a lot of pain no matter what. But I think getting the truth (of the banks asset values) out into the open, even though this will mean bankruptcy in a lot of cases, is better done sooner rather than later. If we spend our money now hoping to not have to go that far, and then we have to go that far anyway, we'll need the money we just spent to recapitalize the "new" banks.
Blah blah. I'm just learning and so regurgitating here.
To blab some more about Krugman on NewsHour: I think he basically agrees with what I said above, but in response to the Geithner proposal he said something like "there's some possible interpretation of the plan that might make it a good plan, but there's just not enough details to tell. My hope is that this [i.e., something like I said above] is really their plan, but they just think the country isn't ready to hear it yet. So they are sort of going halfway, but at least putting the pieces in place, so that when they have to do it [i.e., take over the banks] they will at least be part of the way there." Then he looked kind of skeptical and said something like: "That's the hope anyway."
That's all paraphrased, but it's the gist of it. He didn't sound too hopeful though. This is very similar to Stiglitz saying that they will have to do this eventually, but they are going to try every other possible thing first. - jim 2-11-2009 3:46 pm [add a comment]
we are doomed - Skinny 2-11-2009 3:55 pm [add a comment]
No, it can still be okay. The market is going to end up lower. And home prices are definitely going to end up lower. And credit will be tighter going forward. But these aren't necessarily bad things. Home prices were too expensive. Credit was too loose. So if they do it right it will be like taking bitter medicine: it won't be fun, but if it makes us better it will be a good thing. It might mean there won't be crazy bubbles in the future where people get rich doing nothing, but that's a good thing! Markets aren't suppose to always go up.
The problem, and I think the reason why people like Rubini have to be so dire and dramatic, is that some people (i.e., CNBC talking heads for one) don't get this. They think the market should just always go up; housing prices should always go up.
Think of it like a liver flush for the economy. - jim 2-11-2009 4:04 pm [add a comment]
The TARP 2 plan doesn't go far enough for me. The taxpayers are injecting the capital in the banks but don't have any say into how the capital will be invested. Plus the same guys who took the big risks at the banks are still heading the banks and making the investment decisions. Will they really learn? - ken 2-11-2009 4:37 pm [add a comment]
"the same guys who took the big risks at the banks are still heading the banks and making the investment decisions"
Couldn't agree more! And what's worse, I think they did learn... the wrong lesson: take huge risks; profit on the upside; have taxpayers bail you out if it goes bad.
In most bankruptcy cases top management is removed so that's another good thing about going that route. But if Geithner is the one making the decisions I'm a little nervous - since he was one of the guys who made bad decisions! (Or at least knew about the bad decisions his friends on the St. were making and didn't do anything as head of NY Fed.)
p.s. jim thanks for saying i overpaid for my house, and will never get what i paid in 30 years:>)) - Skinny 2-11-2009 4:45 pm [add a comment]
If you live in it for 30 years you will have gotten tons of value out of it. The people who get killed are people that bought 2nd (and 3rd, etc...) houses they couldn't afford thinking they would flip them. - jim 2-11-2009 4:55 pm [add a comment]
so you are saying I am doomed...Thanks. - ken 2-11-2009 5:04 pm [add a comment]
i think if you paid 2/3's of what the high is your all set, my expert opinion:>)
our house cost 725 + 20K work = 745, there are no 745K house same yet on the market, maybe there will be but not yet
so 2/3 would be 500K, oh well if that happens, i will be no happier or sadder, i just want to live long enough to complain about how much i lost!! - Skinny 2-11-2009 6:35 pm [add a comment]
I am very fortunate to have bought my buildings at a great time. 2002 when Brooklyn's ballon was flat and airless. And built the one when materials were inexpensive. My concern is tenants moving out and having an empty apt. for too long.
Real estate runs a 10 year cycle. However the bubble probably added a good 10 yrs. on. So if one bought at the peak, they bought it at what they should have bought it 10 years from now.
i still think nyc (and immediate surroundings) has the most justification forhigh real prices. the population growth projection is high. it was under valued in 70's, 80's because of crime and urban abandonment. the housing stock was run down and roach infested. i credit Combat for making nyc palletable to all those less than urban pioneers types. there may be some adjustments for manhattan and crazy bkln markets for units that got way way run up. i just think demand will keep the market stronger than california, florida, vegas and those type of bubble mkts. - bill 2-12-2009 10:50 pm [add a comment]
i bought at peak, oh well.....
love life (and will be here in 10 I believe),
gots me an attitude of gratitude - Skinny 2-13-2009 3:47 am [add a comment]
I think you are fine with 745. Its an entire building plus it is NYC. You have land! and there is only so much of that here. People who bought condos here at peak as an "investment" and are renting them for up to $1000 less per month than the mortgage are the ones getting hit hard. Toll Brothers Building on waterfront in williamsburg are selling last remaining condos for almost half of what they were in the beginning. - ken 2-13-2009 2:33 pm [add a comment]
Exactly. And plus, you're an easy walk to subway. Mass transit is going to be more and more important going forward as gas powered cars become more and more undesirable (or just unaffordable.) That's a pretty good buy even if not at the best time. - jim 2-13-2009 3:12 pm [add a comment]
and you bought prior to peak. your good. - bill 2-13-2009 10:48 pm [add a comment]
you all are too positive:>)
did i tell you about the illeagle deck and the ferral cats so the back yard smells of old cat (not allways:>).....
no house on my side of the street has sold for more than 745 since we bought, 735, 740 - Skinny 2-14-2009 2:44 am [add a comment]
Gotta second the comment about land. They ain't making any more.
i want to live on a Plan-It, like a moon, space is the place - Skinny 2-14-2009 3:00 pm [add a comment]
if you had to sell right now you you wouldn't even take a lose considering all the rent saved. But you don't have to sell, right? The deck is easily resolved and I have a pit bull you can borrow for those cats. - ken 2-14-2009 4:28 pm [add a comment]
I guess the clapping was because they were grateful the whole roof didn't come down. Now they only have a 20 foot long hole. Yay! - ken 2-14-2009 4:42 pm [add a comment]
yah but what do I do about the door that opens to the deck and doesnt lock, when the deck is gone....
no need to sell but also its cost a lot to rent this place from the bank - Skinny 2-14-2009 7:09 pm [add a comment]
1) get a lock.
2) have a landing and steps built to code. - bill 2-14-2009 7:48 pm [add a comment]
Or use it to get rid of unwanted guests. - jim 2-14-2009 10:07 pm [add a comment]
jim your welcome anytime:>) - Skinny 2-15-2009 12:27 am [add a comment]
OMFG, listening to those media hacks was painful.
"Give me a metric! I want a metric!"
"What do I invest in TODAY ... right now!"
"Please give me another fucking bubble to invest in!" (Oh wait, I'm channeling The Onion.)
By the way, I'm with Roubini and Taleb. It's either a big U or an L -- best case. Cash is king. - mark 2-12-2009 5:33 am [add a comment]
cash/gold has allways been king (gold way up again), well tulips were for a short time too:>) - Skinny 2-12-2009 1:53 pm [add a comment]
p.s. which cash is gonna be king KING, i'm going with swiss franc's - Skinny 2-12-2009 1:53 pm [add a comment]
good question. i've considered diversifying. - mark 2-12-2009 5:44 pm [add a comment]
get you some of them aussie buck in that portfolio
you could like in one land till the cash runs out than move on to the next
John E Cash World Pro Fun Tour - Skinny 2-13-2009 3:50 am [add a comment]
Here is the NewsHour from the other night I mentioned above with Krugman, Rogoff (Harvard econ prof.), Marron (lightyear capital), and Alice Rivlin (former US cabinet official and current NYSE board member.) They are all very pessimistic. Rivlin tries to say a few more moderate things and Krugman has to jump in with some reality (this is an interesting example of what you see all the time: government officials are very nervous about saying negative things, as if they feel some special weight of responsibility to not "spook" the markets.) Nothing really new here, but this was the moment for me when it finally seemed like the the truth was starting to come out (although, granted, this was on PBS not CNBC, but still...) - jim 2-13-2009 4:52 pm [add a comment]
- jim 2-10-2009 2:44 pm
wow!!!
- Skinny 2-10-2009 3:22 pm [add a comment]
But what should I invest in, Sir Dark Cloud?
- ken 2-10-2009 3:52 pm [add a comment]
LOVE friendship WINE:>)
- Skinny 2-10-2009 4:36 pm [add a comment]
What about the kids...the kids!
- ken 2-10-2009 5:18 pm [add a comment]
- dave 2-10-2009 7:40 pm [add a comment]
the kids have to fend for themselves
- Skinny 2-10-2009 9:20 pm [add a comment]
Yes, Stiglitz is good too. Here's another of him on CNBC, although I haven't even had time to watch that one yet.
The broad outlines appear clear to me, but there's so many details that are not. The big banks are apparently insolvent. Krugman, who I've been disappointed with for backing TARP so strongly, was on The Newshour with Jim Lehrer last night saying some very hard things, including "all the big banks are insolvent." From my vantage point this message has finally broken through to the mainstream. Good.
The next step seems largely agreed upon, which is some sort of government organized bankruptcy. This will involve some sort of at least temporary government control of these banks, so will be "nationalization" in at least some sense of the word. Equity (that is stock) holders will be completely wiped out. Bond holders become equity holders. Some new capital will have to be injected (hopefully at that point and *not* before like the TARP give away.)
Something along this line might work, but will be very painful. One issue is with wiping out stock holders. This seems fair to me since nobody had to invest in these banks, and anyone who did was free to do the research and see that they really weren't good investments. So caveat emptor. Unfortunately a lot of funds, especially things like pension funds, are invested in banks. So it's not like wiping out stock holders is just damaging rich guys on Wall St. A lot of teachers and government workers and other people who can't afford the loses, will see their pensions devastated. And so we'll have to then help those people. But still I don't see any way around it.
The other unresolved issue for me is pricing. This is the same as Geithner's "stress testing" he talked about in his plan. We go into the banks, open the books, and figure out what they are really worth (or, how insolvent they actually are.) This is the key to restoring confidence in the market (in other words, this is the key to restoring the markets.) But pricing these complex synthetic mortgage products is going to be difficult. I haven't heard a plan for how to do this that doesn't open up a strong possibility of the prices all turning out to be $0. (Or, in other words, this is a tough market to price things in.) Still, it's the market we have, so I think we should mark the assets accordingly. But then how do we untangle who actually holds all these mortgages?
Tough stuff. There's going to be a lot of pain no matter what. But I think getting the truth (of the banks asset values) out into the open, even though this will mean bankruptcy in a lot of cases, is better done sooner rather than later. If we spend our money now hoping to not have to go that far, and then we have to go that far anyway, we'll need the money we just spent to recapitalize the "new" banks.
Blah blah. I'm just learning and so regurgitating here.
- jim 2-11-2009 2:49 pm [add a comment]
To blab some more about Krugman on NewsHour: I think he basically agrees with what I said above, but in response to the Geithner proposal he said something like "there's some possible interpretation of the plan that might make it a good plan, but there's just not enough details to tell. My hope is that this [i.e., something like I said above] is really their plan, but they just think the country isn't ready to hear it yet. So they are sort of going halfway, but at least putting the pieces in place, so that when they have to do it [i.e., take over the banks] they will at least be part of the way there." Then he looked kind of skeptical and said something like: "That's the hope anyway."
That's all paraphrased, but it's the gist of it. He didn't sound too hopeful though. This is very similar to Stiglitz saying that they will have to do this eventually, but they are going to try every other possible thing first.
- jim 2-11-2009 3:46 pm [add a comment]
Matt points to Krugman talking about this on his blog (especailly the last "trojan horse" line.)
- jim 2-11-2009 4:20 pm [add a comment]
we are doomed
- Skinny 2-11-2009 3:55 pm [add a comment]
No, it can still be okay. The market is going to end up lower. And home prices are definitely going to end up lower. And credit will be tighter going forward. But these aren't necessarily bad things. Home prices were too expensive. Credit was too loose. So if they do it right it will be like taking bitter medicine: it won't be fun, but if it makes us better it will be a good thing. It might mean there won't be crazy bubbles in the future where people get rich doing nothing, but that's a good thing! Markets aren't suppose to always go up.
The problem, and I think the reason why people like Rubini have to be so dire and dramatic, is that some people (i.e., CNBC talking heads for one) don't get this. They think the market should just always go up; housing prices should always go up.
Think of it like a liver flush for the economy.
- jim 2-11-2009 4:04 pm [add a comment]
The TARP 2 plan doesn't go far enough for me. The taxpayers are injecting the capital in the banks but don't have any say into how the capital will be invested. Plus the same guys who took the big risks at the banks are still heading the banks and making the investment decisions. Will they really learn?
- ken 2-11-2009 4:37 pm [add a comment]
"the same guys who took the big risks at the banks are still heading the banks and making the investment decisions"
Couldn't agree more! And what's worse, I think they did learn... the wrong lesson: take huge risks; profit on the upside; have taxpayers bail you out if it goes bad.
In most bankruptcy cases top management is removed so that's another good thing about going that route. But if Geithner is the one making the decisions I'm a little nervous - since he was one of the guys who made bad decisions! (Or at least knew about the bad decisions his friends on the St. were making and didn't do anything as head of NY Fed.)
- jim 2-11-2009 4:42 pm [add a comment]
fire em all.....
p.s. jim thanks for saying i overpaid for my house, and will never get what i paid in 30 years:>))
- Skinny 2-11-2009 4:45 pm [add a comment]
If you live in it for 30 years you will have gotten tons of value out of it. The people who get killed are people that bought 2nd (and 3rd, etc...) houses they couldn't afford thinking they would flip them.
- jim 2-11-2009 4:55 pm [add a comment]
so you are saying I am doomed...Thanks.
- ken 2-11-2009 5:04 pm [add a comment]
i think if you paid 2/3's of what the high is your all set, my expert opinion:>)
our house cost 725 + 20K work = 745, there are no 745K house same yet on the market, maybe there will be but not yet
so 2/3 would be 500K, oh well if that happens, i will be no happier or sadder, i just want to live long enough to complain about how much i lost!!
- Skinny 2-11-2009 6:35 pm [add a comment]
I am very fortunate to have bought my buildings at a great time. 2002 when Brooklyn's ballon was flat and airless. And built the one when materials were inexpensive. My concern is tenants moving out and having an empty apt. for too long.
Real estate runs a 10 year cycle. However the bubble probably added a good 10 yrs. on. So if one bought at the peak, they bought it at what they should have bought it 10 years from now.
- ken 2-12-2009 5:34 pm [add a comment]
i still think nyc (and immediate surroundings) has the most justification forhigh real prices. the population growth projection is high. it was under valued in 70's, 80's because of crime and urban abandonment. the housing stock was run down and roach infested. i credit Combat for making nyc palletable to all those less than urban pioneers types. there may be some adjustments for manhattan and crazy bkln markets for units that got way way run up. i just think demand will keep the market stronger than california, florida, vegas and those type of bubble mkts.
- bill 2-12-2009 10:50 pm [add a comment]
i bought at peak, oh well.....
love life (and will be here in 10 I believe),
gots me an attitude of gratitude
- Skinny 2-13-2009 3:47 am [add a comment]
I think you are fine with 745. Its an entire building plus it is NYC. You have land! and there is only so much of that here. People who bought condos here at peak as an "investment" and are renting them for up to $1000 less per month than the mortgage are the ones getting hit hard. Toll Brothers Building on waterfront in williamsburg are selling last remaining condos for almost half of what they were in the beginning.
- ken 2-13-2009 2:33 pm [add a comment]
Exactly. And plus, you're an easy walk to subway. Mass transit is going to be more and more important going forward as gas powered cars become more and more undesirable (or just unaffordable.) That's a pretty good buy even if not at the best time.
- jim 2-13-2009 3:12 pm [add a comment]
and you bought prior to peak. your good.
- bill 2-13-2009 10:48 pm [add a comment]
you all are too positive:>)
did i tell you about the illeagle deck and the ferral cats so the back yard smells of old cat (not allways:>).....
no house on my side of the street has sold for more than 745 since we bought, 735, 740
- Skinny 2-14-2009 2:44 am [add a comment]
Gotta second the comment about land. They ain't making any more.
- mark 2-14-2009 5:23 am [add a comment]
i want to live on a Plan-It, like a moon, space is the place
- Skinny 2-14-2009 3:00 pm [add a comment]
if you had to sell right now you you wouldn't even take a lose considering all the rent saved. But you don't have to sell, right? The deck is easily resolved and I have a pit bull you can borrow for those cats.
- ken 2-14-2009 4:28 pm [add a comment]
can do deck demo.
- bill 2-14-2009 4:38 pm [add a comment]
I guess the clapping was because they were grateful the whole roof didn't come down. Now they only have a 20 foot long hole. Yay!
- ken 2-14-2009 4:42 pm [add a comment]
yah but what do I do about the door that opens to the deck and doesnt lock, when the deck is gone....
no need to sell but also its cost a lot to rent this place from the bank
- Skinny 2-14-2009 7:09 pm [add a comment]
1) get a lock. 2) have a landing and steps built to code.
- bill 2-14-2009 7:48 pm [add a comment]
Or use it to get rid of unwanted guests.
- jim 2-14-2009 10:07 pm [add a comment]
jim your welcome anytime:>)
- Skinny 2-15-2009 12:27 am [add a comment]
OMFG, listening to those media hacks was painful.
"Give me a metric! I want a metric!"
"What do I invest in TODAY ... right now!"
"Please give me another fucking bubble to invest in!" (Oh wait, I'm channeling The Onion.)
By the way, I'm with Roubini and Taleb. It's either a big U or an L -- best case. Cash is king.
- mark 2-12-2009 5:33 am [add a comment]
cash/gold has allways been king (gold way up again), well tulips were for a short time too:>)
- Skinny 2-12-2009 1:53 pm [add a comment]
p.s. which cash is gonna be king KING, i'm going with swiss franc's
- Skinny 2-12-2009 1:53 pm [add a comment]
good question. i've considered diversifying.
- mark 2-12-2009 5:44 pm [add a comment]
get you some of them aussie buck in that portfolio
you could like in one land till the cash runs out than move on to the next
John E Cash World Pro Fun Tour
- Skinny 2-13-2009 3:50 am [add a comment]
Here is the NewsHour from the other night I mentioned above with Krugman, Rogoff (Harvard econ prof.), Marron (lightyear capital), and Alice Rivlin (former US cabinet official and current NYSE board member.) They are all very pessimistic. Rivlin tries to say a few more moderate things and Krugman has to jump in with some reality (this is an interesting example of what you see all the time: government officials are very nervous about saying negative things, as if they feel some special weight of responsibility to not "spook" the markets.) Nothing really new here, but this was the moment for me when it finally seemed like the the truth was starting to come out (although, granted, this was on PBS not CNBC, but still...)
- jim 2-13-2009 4:52 pm [add a comment]