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Author Topic: So, the economy  (Read 4133 times)

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Offline ShrowdedPoet

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Re: So, the economy
« Reply #25 on: May 05, 2009, 08:48:34 PM »
I don't care who gets the credit.  If the economy is pulled out of the shitter I am happy.

Offline Zakharra

Re: So, the economy
« Reply #26 on: May 05, 2009, 08:50:04 PM »
I don't get it.  Perhaps I phrased it wrong and something got lost in translation, but what I asked was how much the tax rate is in her area (city, state, province, whatever).  Not her income bracket.

 Income taxes? That is a state/Federal rate depending on income rate. Taxes that are levied locally are property and sales. Property taxes cover a large area since many things are funded from it. It also depends 1:where you live,  2: whether you own or rent,  3: the age/condition of the buildings you have on your land.

Online ZeitgeistTopic starter

Re: So, the economy
« Reply #27 on: May 05, 2009, 09:53:40 PM »
How much and to what degree is Obama to be credited, or will be credited (should be credited?) for the seemingly impending retraction from the abyss? That is the question  ;D

I want to emphasize, we were told, in no uncertain terms, this would be a long, hard road to recovery with no quick fixes. Are we out of the woods yet? Perhaps not...?

Offline OldSchoolGamer

Re: So, the economy
« Reply #28 on: May 06, 2009, 01:36:19 AM »
Several points to consider.

First, there is no recovery, in any typical, normal sense of that word.  There can't be, as an economic recovery would violate the basic laws of thermodynamics.  I can already see eyebrows going up at that statement, so let me explain.

For the better part of the last three decades, the American economy has been based on the premise that a society can consume more than it produces and earns--forever.  We have been like a family making $30,000 to $50,000 a year spending, oh, $100,000 to $200,000 a year.  After you get away with it for long enough, you come to think of it as normal when it's anything but.  America got away with it because we were big and powerful (like Nicky Santoro in Casino, we were the muscle, so we didn't have to pay when we bet wrong).  We also had a one-time bonanza of cheap fossil fuels, giving us access to tremendous amounts of energy per capita, more so than any other human civilization in history. 

It is this last part that eludes the understanding of most Americans.  The first part alone would be devastating to our economy, leading to a repeat of the 1930s at the very least as the rest of the world ceases loaning us money to fuel the credit binge (China has already, at least to a great extent, cut off our line of credit).  But the depletion of fossil fuels is going to be the real kicker, because our civilization is based on cheap energy and there's no way we can have that without oil. 

So this is why the whole point of who can take credit for the recovery is moot: there is no recovery.  We will never go back to $1.79 a gallon gasoline or flipping homes and cashing out $50,000 in equity every few years.  All that has happened is that the government has shoveled out enough fiat money to temporarily mask the symptoms of our incipient crash-to-baseline in terms of energy and resource consumption.  But money is not wealth, and more important, it cannot substitute for basic energy resources.  Once oil depletion seriously kicks in (we got a taste of it in 2008), all the government borrowing and printing money to help us afford $150 a barrel oil will do is lead to $200 a barrel oil, then $300 a barrel oil, and so on as more dollars chase an inexorably dwindling energy supply.

Now, I can already hear the rebuttals: there's a secret hidden Ghawar-sized field under Alaska or Colorado that the tree-huggers won't let us drill, there's tar sands and oil shale, or a magical techno-fix is just around the corner. 

The short answers: even if you could somehow pump every barrel of domestic U.S. reserves, there's simply not enough there to substantially affect global oil markets and the depletion curve.  Tar sands and oil shale are not liquid crude, and require energy inputs nearly as great as what is obtained by their use.  (Forget dollars-per-barrel projections on how much oil shale and tar sands "cost," as these dollar figures assume cheap fossil fuels; the real measure of viability is energy return on energy invested, and to put it simply, tar sands and oil shale suck compared to the liquid crude we take for granted.)  And, while technology may someday yield an inexhaustible source of energy from somewhere, such sources are decades away from being viable, yet alone commercially deployed, and oil depletion is now just around the corner.

Offline MercyfulFate

Re: So, the economy
« Reply #29 on: May 06, 2009, 02:14:08 AM »
Several points to consider.

First, there is no recovery, in any typical, normal sense of that word.  There can't be, as an economic recovery would violate the basic laws of thermodynamics.  I can already see eyebrows going up at that statement, so let me explain.

For the better part of the last three decades, the American economy has been based on the premise that a society can consume more than it produces and earns--forever.  We have been like a family making $30,000 to $50,000 a year spending, oh, $100,000 to $200,000 a year.  After you get away with it for long enough, you come to think of it as normal when it's anything but.  America got away with it because we were big and powerful (like Nicky Santoro in Casino, we were the muscle, so we didn't have to pay when we bet wrong).  We also had a one-time bonanza of cheap fossil fuels, giving us access to tremendous amounts of energy per capita, more so than any other human civilization in history. 

It is this last part that eludes the understanding of most Americans.  The first part alone would be devastating to our economy, leading to a repeat of the 1930s at the very least as the rest of the world ceases loaning us money to fuel the credit binge (China has already, at least to a great extent, cut off our line of credit).  But the depletion of fossil fuels is going to be the real kicker, because our civilization is based on cheap energy and there's no way we can have that without oil. 

So this is why the whole point of who can take credit for the recovery is moot: there is no recovery.  We will never go back to $1.79 a gallon gasoline or flipping homes and cashing out $50,000 in equity every few years.  All that has happened is that the government has shoveled out enough fiat money to temporarily mask the symptoms of our incipient crash-to-baseline in terms of energy and resource consumption.  But money is not wealth, and more important, it cannot substitute for basic energy resources.  Once oil depletion seriously kicks in (we got a taste of it in 2008), all the government borrowing and printing money to help us afford $150 a barrel oil will do is lead to $200 a barrel oil, then $300 a barrel oil, and so on as more dollars chase an inexorably dwindling energy supply.

Now, I can already hear the rebuttals: there's a secret hidden Ghawar-sized field under Alaska or Colorado that the tree-huggers won't let us drill, there's tar sands and oil shale, or a magical techno-fix is just around the corner. 

The short answers: even if you could somehow pump every barrel of domestic U.S. reserves, there's simply not enough there to substantially affect global oil markets and the depletion curve.  Tar sands and oil shale are not liquid crude, and require energy inputs nearly as great as what is obtained by their use.  (Forget dollars-per-barrel projections on how much oil shale and tar sands "cost," as these dollar figures assume cheap fossil fuels; the real measure of viability is energy return on energy invested, and to put it simply, tar sands and oil shale suck compared to the liquid crude we take for granted.)  And, while technology may someday yield an inexhaustible source of energy from somewhere, such sources are decades away from being viable, yet alone commercially deployed, and oil depletion is now just around the corner.

We're also going to lose the dollar as the world's reserve currency, almost everyone is endorsing the move. You're right though, and it highlights why we need a Green sector to be built up quickly.

Offline Vekseid

Re: So, the economy
« Reply #30 on: May 06, 2009, 06:45:03 AM »
Several points to consider.

First, there is no recovery, in any typical, normal sense of that word.  There can't be, as an economic recovery would violate the basic laws of thermodynamics.  I can already see eyebrows going up at that statement, so let me explain.

Considering the Sun supplies more energy in a second than the entire history of human civilization has consumed, ever, I'm wondering which law.

Quote
For the better part of the last three decades, the American economy has been based on the premise that a society can consume more than it produces and earns--forever.  We have been like a family making $30,000 to $50,000 a year spending, oh, $100,000 to $200,000 a year.

Naturally the real comparison is more like a family making $1,000,000,000,000 a year and spending $1,050,000,000,000 a year, after it had been intensely earning more than it had spent for most of the previous forty.

Gross exaggerations do not help a case.

Quote
*snip*

Now, I can already hear the rebuttals: there's a secret hidden Ghawar-sized field under Alaska or Colorado that the tree-huggers won't let us drill, there's tar sands and oil shale, or a magical techno-fix is just around the corner. 

Valcent is currently capable of supplying a thousand barrels per acre per year from algaculture, and claims of five times that as being possible. Ignore that though. Go with the low end estimates of roughly a sixth of Valcent's current production, and the entire global oil supply can be handled with a million square miles of surface area.

Quote
The short answers: even if you could somehow pump every barrel of domestic U.S. reserves, there's simply not enough there to substantially affect global oil markets and the depletion curve.  Tar sands and oil shale are not liquid crude, and require energy inputs nearly as great as what is obtained by their use.  (Forget dollars-per-barrel projections on how much oil shale and tar sands "cost," as these dollar figures assume cheap fossil fuels; the real measure of viability is energy return on energy invested, and to put it simply, tar sands and oil shale suck compared to the liquid crude we take for granted.)

And yet Alberta is getting rich off tar sands and Petrosix is nearing its twentieth birthday.

Quote
And, while technology may someday yield an inexhaustible source of energy from somewhere, such sources are decades away from being viable, yet alone commercially deployed, and oil depletion is now just around the corner.

Tar sands are commercially viable, and currently being consumed in the United States.

Biodiesel is commercially viable, and is currently being produced and consumed in the United States.

They are commercially viable, now. There may not be one single solution, but the world's oil supplies are not going to magically vanish tomorrow or even a decade from now. America's oil consumption actually decreased last year, and half a dozen major potential alternatives - liquefaction, shale, tar sands, algaculture...

In the end, of course, it will probably be algaculture or some similar form of carbon sink synthesis. The others are simply stopgaps - ie treating feasible liquefaction as a ~30 billion barrel oil field.

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Re: So, the economy
« Reply #31 on: May 06, 2009, 10:44:18 AM »
Poet wouldn't mind green energy jobs.  Also she wants the plastic bags done away with and these lovely cloth bags to be the norm.  They work much better than plastic bags anyway.  Hold more, easier to carry, less likely to split in half ruining most of your groceries.  If only green weren't so expensive.  I was raised up with a green way of thinking before it was the shit though.  *laughs*  But I really think a green industry would help immensely!

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Re: So, the economy
« Reply #32 on: May 06, 2009, 10:46:34 AM »
Naturally the real comparison is more like a family making $1,000,000,000,000 a year and spending $1,050,000,000,000 a year, after it had been intensely earning more than it had spent for most of the previous forty.

Gross exaggerations do not help a case.

You may well be right about the exaggeration part, as far as structure of argument goes.

On the other hand, I think quite a few of us have been overspending by considerably more than 5% of our earnings, which is all the example above would suggest. 

It cost me around $6,000 just to relocate last year, while I was making $20,000/year.  Okay, that's with a 1-bedroom sized chunk of possessions (particularly, a good few books) going by air freight.  But think of what a mid-sized, middle-class familly would move, even by ground.  Not that everyone is moving, but it seems fair to note that a good few people are getting pinched for something or other just now: 

The general economic malaise presumably has more people retraining, drawing down savings to cover major expenses and lost benefits, and holding out in school waiting for leading sector jobs to become available.  Suggests to me that the debt ratio will also stay relatively higher than "normal" (whatever it was), at least for a little while.   

I also just flicked through a few unofficial websites, and came up with US national debt to GDP ratios anywhere from 50 to 300.  (Ranging from 2007 to 2009, but still seems a wide range.)  Surely, there are some "prominent" people with current numbers around someplace.  Whatever they would say: again for the government, much more than 5%.

Whatever the actual dollar figure for average househould spending-beyond-means, adjusted for inflation and current exchange rates would be...  To get at the impact of this, you have to multiply it across the population, times all those years, with interest on the debt. 

Plus, here and now adjust for how few countries in the world have currencies with our particular oomph, and how their economies are doing now that our loose banking system (certainly in their perception, as I understand it) just hammered them too.  While continued borrowing is not the only option, it seems to be one that we will need to use at some level.  Looking at it this way would say more about how disrupted our position is in that sense. 

(Not really material to the quote, but: From trillions in the black to what, hundred billions in the red?  And the right wants to blame it all on a lack of tax breaks and on the Clinton era?  Seems hard to believe.)   

[Edit: Sorry, last min. edits. 
I mixed up figuring the 5% in Vek's example and got slightly confused for a min.


« Last Edit: May 06, 2009, 10:50:59 AM by kylie »

Offline consortium11

Re: So, the economy
« Reply #33 on: May 06, 2009, 12:21:41 PM »
That's the same mindset that says FDR's New Deal prolonged the Depression, something I can't fully believe. Perhaps government intervention played a role, but de-regulation and greed caused it to explode.

Far smarter people than me with a more extensive historical economics background sand access to far more of the stats from the time still debate whether the New Deal helped or hindered the recovery from the Depression. From the little I know I think in pure economic terms it wasn't a good idea... but much like aspects of the current bailout were needed to prevent human suffering, I think it worked for that reason. At a certain time you have to balance the economic long term goal with the short term human one.

And to be fair, it's not the mindset that says the New Deal prolonged the depression. It's the mindset that when a government tries to play politics with the economy it generally doesn't end well.

The basic premise of the trade was the espousal that property values would always increase - not everyone making these decisions believed this, but that was what was frequently proposed. Thus, it didn't matter if the person who got a liar's loan shoved down their throat would eventually get foreclosed on, couldn't afford an ARM, etc. The bank would still turn a profit on the foreclosure sale.

If that was the case then the sub-prime failure that sparked the whole crises would have been restricted to just that sector. It wasn't. The major investment banks never planned on using foreclosure sales to make a profit. They were a way of hedging their other risks... which is why derivatives are getting such a bad name. Sub-prime lenders set up CDS's, their partners sold on CDO's and before you know it banks that had nothing to do with the original foreclosure had debt in their books.

All of which would have meant nothing outside for a mild downturn in certain areas if not for the fact the market was glutted with these sub-prime loans at the insistence of the HUD. The state played politics with economic entities, refused to take the responsibility for dealing with it (which as said above looked worse in light of the Freddy and Fannie donations) and lost. Sub-prime was always going to fail when house prices stopped rising... but the damage that sub-prime did could have been severely limited if the HUD hadn't encouraged and virtually created the mass trade in them.

Wells Fargo is solvent because it refused to pull that crap. Likewise, Washington Mutual, etc. failed because it did. This isn't a matter of guesswork in any sense - the policies behind loan underwriting are directly responsible for Wells Fargo's success and WaMu's failure.

And all credit to Wells Fargo, although it should be noted their mortgage division also got crippled. IIRC they lost about 1.8 billion there... obviously a far cry from the 7 or 8 billion other banks were using, but a substantial sum. Wells Fargo didn't play in the sector that got hit... although they also have no history in that sector. The city law firm Linklaters is doing far better than most of the rest of the magic circle and other big corporate law firms because they have always had an excellent insolvency division (and are picking up roughly £1.3 a week for the Lehman insolvency). That doesn't mean they planned it all correctly. It's just the market position they held. Wells Fargo's exposure to sub-prime was hit as severely as anyone else’s... they just didn't deal in it as much. If they'd truly refused to pull that crap their exposure would have been at worst in millions... not over a billion.

Lets also note that it wasn't their exposure that finally killed off WaMu... it was a mass run on the bank... which relates entirely to confidence and not to the actual financial position of the entity. Without the run WaMu may well still be around.

Government interference did not cause WaMu to fail, though it could have prevented said failure. Alan Greenspan made the claim that banks would do fine with deregulation because banks would not engage in self destructive behaviour like that.

Except, banks do not magically run on their own - they are run by executives.

I'm honestly not sure anything other than incredibly restrictive regulation... to the extent that Washington would have been barely competitive... could have prevented it suffering a pretty massive downturn. Killinger got star struck in the late 90's and turned one of the safest, most efficient management structures into one that had virtually no checks and balances, leaving the mortgage department to run on its own and most of the original team leaving. Killinger began to listen to his own hype and lost what had originally made him special... his "the anti-banker" viewpoint and instead embraced the worst excesses of the culture. He became to cliché of the outsider done good who falls victim to all the vices of the "in crowd". He saw what the company had done with thrifts, saw the profit that its 1999 takeover of a sub-prime lender had quickly made and thought the same logic could be applied. The mortgage department was failing to hedge efficiently and the mass of accolades Killinger was receiving kept him hyped for more. His idea of becoming the "Walmart of banking" and his decision to move the entire bank in the direction of low and mid-level mortgages was always going to turn bad when the market changed. Unless regulation didn't allow him to direct the company it was always going to tie itself to subprime heavily. It may have survived the downturn, but it was always going to be hit heavily... and if there was a run it would probably have been screwed anyway.

Greenspan may have believed in deregulation as a whole, but he also gave warnings (unheeded) over Freddy and Fannie in 2005 where the situation could have been mitigated if not defused. Let's also be honest here... he's trying to protect his own position. He was encouraging banks into sub-prime in 2005, has tried to place all the blame on rating's agencies (although they should take their fair share of the blame.) and had an unnatural fear of Japanese style deflation. Derivatives should have had some regulation... but at the same time if that were to be the case they'd have just moved to Singapore and continued to trade and the situation would be much the same.

At the end of the day all of this matters little though. Sub-prime had always been a high risk, high reward sector that brought great profits when the market was good and poor performance when it was bad. Because of this the major institutions stayed away from it, having it as a fringe, niche sector at the largest. But when HUD forced the increase in sub-prime lending the market became glutted with them. It was nearly impossible to find a vehicle that didn't contain them. Banks could have stayed away entirely, but their director’s have a duty to act in the best interests of shareholders... and in a time where other institutions were making their huge profits shareholders would be getting antsy when a bank which was (in retrospect) doing the right thing and making a much lower amount.

As I said above, the instructions set up the dominoes, but it took the government to knock it down. The people in the financial sector should not escape blame (although they're managing it quite well), but neither should HUD's role in playing politics. Without them the inevitable downturn in sub-prime would have made a lot of news in the financial press and probably got on a few news reports rather than what we’ve actually seen.

Offline OldSchoolGamer

Re: So, the economy
« Reply #34 on: May 07, 2009, 02:20:33 AM »
Considering the Sun supplies more energy in a second than the entire history of human civilization has consumed, ever, I'm wondering which law.

It does...but who's going to tap it?  Unless someone comes up with a feasible way of harnessing that energy for human use, it's moot. 

Quote
Naturally the real comparison is more like a family making $1,000,000,000,000 a year and spending $1,050,000,000,000 a year, after it had been intensely earning more than it had spent for most of the previous forty.

Depends on how you look at it.

In terms of the federal budget, the gap between income and outgo has been considerably more than 5%...even before the current binge. 

In terms of energy usage...the gap is far greater.  If you doubt me, consider that aerobic exercise produces a hundred to two hundred watts of energy per hour.  How long could you jog before becoming exhausted?  That's your natural, balanced energy budget for the day.  How long would that run your computer, your TV, your microwave oven.  Then there's your car.  Then there's all the energy used to manufacture what you consume, and transport it to you.  That's like earning $50,000 and spending $500,000 or so. 

Yes, I already know you're going to make a SAT argument...with sufficiently advanced technology, all this could be overcome and we could have more more more.  Yes, someday it could.  If we had begun and maintained a serious R&D effort into thermonuclear fusion back in the Seventies, yes, we might only be a decade or so from deploying thermonuclear fusion-based reactors.  But we didn't.   

Quote
Valcent is currently capable of supplying a thousand barrels per acre per year from algaculture, and claims of five times that as being possible. Ignore that though. Go with the low end estimates of roughly a sixth of Valcent's current production, and the entire global oil supply can be handled with a million square miles of surface area.

This would be far from the first flash-in-the-pan alt.energy announcement.  Remember cold fusion?  Ever since the Seventies we've had inventors claim they can run industrial civilization on everything from perpetual motion machines to cow farts.  None of it has progressed beyond the individual or very small group level. 

How much energy (read: fossil fuel) input is required to obtain each of these barrels of algae-fuel?  Does burning algae yield the same kilojoules per unit of volume that combustion of crude oil does?  If we have to input 0.5 barrels of oil's worth of energy to get a barrel of algae that only yields 60% the energy of oil, are we really accomplishing anything no matter how many swimming pools of foreclosed homes we task for this endeavor?

Quote
And yet Alberta is getting rich off tar sands and Petrosix is nearing its twentieth birthday.

Tar sands are commercially viable, and currently being consumed in the United States.

Only because we can rob Peter (natural gas) to create the heat to pay Paul (liquefy tar sand).  Natural gas is not far behind oil on the depletion curve...and that curve will get a lot steeper if we use our remaining natural gas reserves to liquefy tar sands.  There is talk of building nuclear reactors (fission), but that begs the question of why we should use uranium (itself a limited resource with a depletion curve about thirty years behind that of oil) to generate energy to be (largely) wasted to produce oil.  Why not fiss the uranium's energy directly into the power grid, if we're going to accept all the risks of fission reactors?

Quote
Biodiesel is commercially viable, and is currently being produced and consumed in the United States.

Again, there's robbing Peter (the fossil fuel supply--do you have any idea how fossil fuel intensive U.S. agriculture is?) to pay Paul (using FOOD for fuel).

Quote
There may not be one single solution, but the world's oil supplies are not going to magically vanish tomorrow or even a decade from now.

They don't have to vanish.  2008 demonstrated that.  All oil has to do is fail to meet demand, and the price soars, and the economy crashes.  Markets do not behave rationally.  If there is any real fear that oil production will fail to meet demand, the price surges.  Look at the Dutch tulip mania for what the psychology of scarcity can do to the price of something that served no practical use whatsoever, let alone the price of a commodity essential to industrial civilization.

Quote
In the end, of course, it will probably be algaculture or some similar form of carbon sink synthesis. The others are simply stopgaps - ie treating feasible liquefaction as a ~30 billion barrel oil field.

If algaculture isn't another dead end, and if we have time to perfect it, scale it, deploy it, and then retrofit the energy infrastructure to run on algae.  All big "ifs."

Offline Zakharra

Re: So, the economy
« Reply #35 on: May 07, 2009, 08:49:07 AM »
 [qwuote]They don't have to vanish.  2008 demonstrated that.  All oil has to do is fail to meet demand, and the price soars, and the economy crashes.  Markets do not behave rationally.  If there is any real fear that oil production will fail to meet demand, the price surges.  Look at the Dutch tulip mania for what the psychology of scarcity can do to the price of something that served no practical use whatsoever, let alone the price of a commodity essential to industrial civilization.[/quote]

 There was no oil shortage in 2008. That was a purely market driven price run up by speculators and OPEC. It had nothing to do with an actual lack of oil supply in the world.

Offline OldSchoolGamer

Re: So, the economy
« Reply #36 on: May 07, 2009, 02:07:41 PM »
There was no oil shortage in 2008. That was a purely market driven price run up by speculators and OPEC. It had nothing to do with an actual lack of oil supply in the world.

Whether there was an actual shortage is debatable, but at the very least, there was little to no slack in the supply system during that price run-up.  Toward the end, even OPEC tried to bring the price down.  OPEC likes moderately high oil prices, but they don't want oil prices to get SO high that economies shrink and people seriously look for alternatives.  If they had their druthers, we'd return to the level of economic production and growth we had three years ago, with oil right around $75 to $90 a barrel. 

As far as speculators driving up the price...well, that's how markets work, especially when dealing with a linchpin commodity like crude oil.  If there's even a relatively slight possibility of a shortage, traders are going to go long.  This is one of my key points: oil doesn't have to "run out" for the price to soar. 

Offline Zakharra

Re: So, the economy
« Reply #37 on: May 07, 2009, 03:20:32 PM »
 Party of your arguement was how the oil supply was limited. There was no limit in the oil supply then. It was a purely fictional implication. The supply was there all the time. OPEC lowered the price because it was affecting their bottom line (which you did acknowledge  :-)  )

Offline consortium11

Re: So, the economy
« Reply #38 on: May 07, 2009, 03:25:52 PM »
Party of your arguement was how the oil supply was limited. There was no limit in the oil supply then. It was a purely fictional implication. The supply was there all the time. OPEC lowered the price because it was affecting their bottom line (which you did acknowledge  :-)  )

That isn't strictly true. OPEC regulates how much oil they actually produce at any given time in an attempt to stabalise the price. However much oil there is in the world, supply will always be limited to however much is actually in circulation at a given time.

In short, OPEC couldn't keep up with the sudden fear about oil prices. They upped production as soon as they could, but by then traders had already hedged their risk, forcing the price yet higher.

Offline Zakharra

Re: So, the economy
« Reply #39 on: May 07, 2009, 06:47:37 PM »
 But there was no oil supply shortage. The price increase had no real basis in supply and demand. There was plenty of oil in the market. People keep argueing about decreasing oil. There IS no decreasing oil supply. Right now and for the next century at least there is plenty to be had. For the oil that is harder (at this time) to reach, technologies will be developed to make getting it cheaper and it will be avalible. IF the enviromentalists do not stop access to it.

Offline consortium11

Re: So, the economy
« Reply #40 on: May 07, 2009, 07:21:07 PM »
Yes, there was an oil shortage. The oil producing countries were pushing further and further towards the area where they couldn't match production to demand, which briefly occured in 2008 during the high point. Industrialising countries required more oil than before... notably the countries that produced oil were themselves using more and during the height of the "roaring naught'ies" the traditional oil importers were also using and requiring more. Supply couldn't meet demand... not necessarily because of a lack of supply of oil to begin with, but because of an inability to extract it in time. That was the basic issue, furthered by speculation (although the damage that did is overstated) and companies that rely on oil (notably airlines) using forwards and futures to guarentee supply.

In some way the credit crunch actually helped the issue by killing demand for oil and helping to reduce the price.

So there was an oil shortage, not in the underlying resource, but in the ability to get that resource to the consumer. There could have been enough oil left in the ground to power the universe for a trillion years... it doesn't matter if it can't be brought out of the ground quick enough. The fears, rational or not, about peak oil having been reached added to it as did the political situation (notably the fear of the Straits of Hormuz being closed), which can be seen as a major cause as well... but only briefly. At heart it was a supply and demand problem exasberated by outside factors.

Offline Vekseid

Re: So, the economy
« Reply #41 on: May 07, 2009, 08:18:09 PM »
That was the basic issue, furthered by speculation (although the damage that did is overstated)

Err, there's a lot to respond to, and I don't have much time atm, but you can actually look at the historical data and calculate the effect:

http://futures.tradingcharts.com/chart/CO/M

The rate in 'natural' oil price growth seems to be surprisingly linear, adjusting for inflation, but deviations are frequent. The timing of peak oil prices colluding with with the closure of the loophole in late June of 2008 pretty well reflects that most of the issue was in fact speculation.

Offline consortium11

Re: So, the economy
« Reply #42 on: May 07, 2009, 10:05:06 PM »
Correlation equal Causeation.

In fact, most of the evidence points the other way. As a basis, if speculation was the main cause in the raise in prices then you'd expect to see the other sectors that have heavy speculation also do as well. Several didn't. Several actually fell considerably. Likewise, if speculation was the driving force then commodoties that don't have exchanges (and thus are a far rarer trade) shouldn't have experienced similar levels of growth. Several did, notably iron, coal and steel. Oil, iron, coal and steel are the hallmarks of emerging markets and developing countriess... an increase in demand.

Likewise, if speculation artificially raised the price (as in there was no connection to real world supply and demand) then we should have seen a large increase in inventories over the period. Not only did inventories not increase, they actually fell. If speculation drove the price then if we examine the net changes the traders made it should be mimiced by the market. With a few exceptions (normally based on new infomation hitting the market), it didn't... the reverse happened with traders following the market.

As for why a sudden reverse happened, there are multiple causes, but the main is simple supply and demand. As more oil was needed by emerging markets and supply struggled to cope prices increased. As that demand lowered as the true extent of the financial crisis hit so did prices... mirrored in steel, coal and iron. Oil is notable for having a slow reaction in demand to rising cost (as it is so vital), but by late May 2008 consumer's were buying less oil due to the price... and that filters through. Fear of an immenant attack on Iran had faded compared to the sabre rattling over the previous years and when its all thrown together it seems hard to say "well, it was the traders fault." They didn't help, they may have made it slightly worse, but it wasn't their gambling that drove the price as high as it did. As demand had outstripped supply, now supply outstripped demand (especially as OPEC can't keep to its own reduction targets let alone try to convince Russia to join in).

Offline Vekseid

Re: So, the economy
« Reply #43 on: May 09, 2009, 10:12:06 PM »
If that was the case then the sub-prime failure that sparked the whole crises would have been restricted to just that sector. It wasn't. The major investment banks never planned on using foreclosure sales to make a profit. They were a way of hedging their other risks... which is why derivatives are getting such a bad name. Sub-prime lenders set up CDS's, their partners sold on CDO's and before you know it banks that had nothing to do with the original foreclosure had debt in their books.

Well the idea was that housing prices would always increase as a hedge against that. ARMs tend to coincide rather disturbingly with predatory lending to say otherwise.

A lot of investment banks were rather horribly leveraged. I'm not sure how you could say they were hedging their risks.

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All of which would have meant nothing outside for a mild downturn in certain areas if not for the fact the market was glutted with these sub-prime loans at the insistence of the HUD.  The state played politics with economic entities, refused to take the responsibility for dealing with it (which as said above looked worse in light of the Freddy and Fannie donations) and lost. Sub-prime was always going to fail when house prices stopped rising... but the damage that sub-prime did could have been severely limited if the HUD hadn't encouraged and virtually created the mass trade in them.

Allowing ARMs, negative amortization and effective zero leveraging had nothing to do it?

Don't get me wrong, I don't argue that pushing subprime was a good idea. But ideally we want a robust system where a single mistake - even on the administrative level - does not bring the entire house down. Literally in this case.

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And all credit to Wells Fargo, although it should be noted their mortgage division also got crippled. IIRC they lost about 1.8 billion there... obviously a far cry from the 7 or 8 billion other banks were using, but a substantial sum. Wells Fargo didn't play in the sector that got hit... although they also have no history in that sector. The city law firm Linklaters is doing far better than most of the rest of the magic circle and other big corporate law firms because they have always had an excellent insolvency division (and are picking up roughly £1.3 a week for the Lehman insolvency). That doesn't mean they planned it all correctly. It's just the market position they held. Wells Fargo's exposure to sub-prime was hit as severely as anyone else’s... they just didn't deal in it as much. If they'd truly refused to pull that crap their exposure would have been at worst in millions... not over a billion.

I don't think they would have had any losses at all if they simply avoided home equity loans, which they are taking enormous writedowns to.

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Lets also note that it wasn't their exposure that finally killed off WaMu... it was a mass run on the bank... which relates entirely to confidence and not to the actual financial position of the entity. Without the run WaMu may well still be around.

I'm honestly not sure anything other than incredibly restrictive regulation... to the extent that Washington would have been barely competitive... could have prevented it suffering a pretty massive downturn. Killinger got star struck in the late 90's and turned one of the safest, most efficient management structures into one that had virtually no checks and balances, leaving the mortgage department to run on its own and most of the original team leaving. Killinger began to listen to his own hype and lost what had originally made him special... his "the anti-banker" viewpoint and instead embraced the worst excesses of the culture. He became to cliché of the outsider done good who falls victim to all the vices of the "in crowd". He saw what the company had done with thrifts, saw the profit that its 1999 takeover of a sub-prime lender had quickly made and thought the same logic could be applied. The mortgage department was failing to hedge efficiently and the mass of accolades Killinger was receiving kept him hyped for more. His idea of becoming the "Walmart of banking" and his decision to move the entire bank in the direction of low and mid-level mortgages was always going to turn bad when the market changed. Unless regulation didn't allow him to direct the company it was always going to tie itself to subprime heavily. It may have survived the downturn, but it was always going to be hit heavily... and if there was a run it would probably have been screwed anyway.

Well, the only way to do that would be mandating DTI ratios for loans. It wouldn't eliminate subprime but it would be err, a bit more sane.

The run was just the brick on the camel's back, really. Loss after loss, no end in site for the prospect of more and the FDIC only insured the first 100k.

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Greenspan may have believed in deregulation as a whole, but he also gave warnings (unheeded) over Freddy and Fannie in 2005 where the situation could have been mitigated if not defused. Let's also be honest here... he's trying to protect his own position. He was encouraging banks into sub-prime in 2005, has tried to place all the blame on rating's agencies (although they should take their fair share of the blame.) and had an unnatural fear of Japanese style deflation. Derivatives should have had some regulation... but at the same time if that were to be the case they'd have just moved to Singapore and continued to trade and the situation would be much the same.

Escaping US regulations is not just a matter of moving to Singapore.

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At the end of the day all of this matters little though. Sub-prime had always been a high risk, high reward sector that brought great profits when the market was good and poor performance when it was bad. Because of this the major institutions stayed away from it, having it as a fringe, niche sector at the largest. But when HUD forced the increase in sub-prime lending the market became glutted with them. It was nearly impossible to find a vehicle that didn't contain them. Banks could have stayed away entirely, but their director’s have a duty to act in the best interests of shareholders... and in a time where other institutions were making their huge profits shareholders would be getting antsy when a bank which was (in retrospect) doing the right thing and making a much lower amount.

Would you be surprised if I considered that attitude the fault of the mass of nearsighted day traders more than HUD?

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As I said above, the instructions set up the dominoes, but it took the government to knock it down. The people in the financial sector should not escape blame (although they're managing it quite well), but neither should HUD's role in playing politics. Without them the inevitable downturn in sub-prime would have made a lot of news in the financial press and probably got on a few news reports rather than what we’ve actually seen.

Bush and co were warned by the FBI during their first term - before Fannie and Freddy started serious buying - that a lot of shenanigans were going on in the mortgage arena.  HUD may not have helped but it was far from the only instigator as you originally declared.

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Correlation equal Causeation.

But it has a way of saying "Look! Over there!"

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In fact, most of the evidence points the other way. As a basis, if speculation was the main cause in the raise in prices then you'd expect to see the other sectors that have heavy speculation also do as well. Several didn't. Several actually fell considerably. Likewise, if speculation was the driving force then commodoties that don't have exchanges (and thus are a far rarer trade) shouldn't have experienced similar levels of growth. Several did, notably iron, coal and steel. Oil, iron, coal and steel are the hallmarks of emerging markets and developing countriess... an increase in demand.

Iron, coal and steel also depend on the price of gas. Iron prices are also in part prenegotiated and there were fears of shortages (why, I have no idea).

Regardless, a speculation drive like this depends on the idea that the price of a commodity is always going to rise. Any commodity that risks falling in price is not something people would try to pull the same stunt with.

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Likewise, if speculation artificially raised the price (as in there was no connection to real world supply and demand) then we should have seen a large increase in inventories over the period.

*snip*

Err, no.

Speculation on futures requires no such thing. "I'm going to buy a thousand barrels in June of 2009 for $63k" etc. does not magically increase my inventory, and I can later sell those futures off to someone else and make a few thousand, and so on. The circle jerk was going on behind closed doors until the loophole was closed.

Offline Vekseid

Re: So, the economy
« Reply #44 on: May 09, 2009, 11:11:41 PM »
It does...but who's going to tap it?  Unless someone comes up with a feasible way of harnessing that energy for human use, it's moot. 

Solar power is infeasible?

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Depends on how you look at it.

In terms of the federal budget, the gap between income and outgo has been considerably more than 5%...even before the current binge. 

I was including trade deficits... one of the odd things about our current situation is we are fully capable of supporting ourselves. The question of where the money goes and the implication of that is best for another topic.

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In terms of energy usage...the gap is far greater.  If you doubt me, consider that aerobic exercise produces a hundred to two hundred watts of energy per hour.  How long could you jog before becoming exhausted?  That's your natural, balanced energy budget for the day.

No, no it isn't. It has not been mankind's natural limit for half a million years. We've actually evolved to cope with fire, for crying out loud.

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Yes, I already know you're going to make a SAT argument...with sufficiently advanced technology, all this could be overcome and we could have more more more.  Yes, someday it could.  If we had begun and maintained a serious R&D effort into thermonuclear fusion back in the Seventies, yes, we might only be a decade or so from deploying thermonuclear fusion-based reactors.  But we didn't.

...why do we need fusion reactors now? We have plenty of coal and the political will for nuclear power is returning. I see nothing wrong with the schedule for DEMO as planned, there's four decades between DEMO's planned go-live date and possible worries of a coal shortage, given no improvements in coal extraction.

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This would be far from the first flash-in-the-pan alt.energy announcement.  Remember cold fusion?  Ever since the Seventies we've had inventors claim they can run industrial civilization on everything from perpetual motion machines to cow farts.  None of it has progressed beyond the individual or very small group level. 

...comparing something that is in commercial production to perpetual motion and fraud is not a way to get your point taken seriously.

What I find the greatest about it is that, like with fabbers and the early computer industry, there are a lot of enthusiasts making it themselves at their homes.

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How much energy (read: fossil fuel) input is required to obtain each of these barrels of algae-fuel?

Difficult to properly consider this since doing it at home is possible on one end of the spectrum (making it rather hard for gas to compete with) and on the business end, it's actually best paired with desalination (nutrients), coal burning (co2), or sewage (both) for maximum efficiency, taking advantage of the brine, carbon emissions and other waste these facilities push into the environment.

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Does burning algae yield the same kilojoules per unit of volume that combustion of crude oil does?  If we have to input 0.5 barrels of oil's worth of energy to get a barrel of algae that only yields 60% the energy of oil, are we really accomplishing anything no matter how many swimming pools of foreclosed homes we task for this endeavor?

...barrel of biodiesel. Algaculture can produce many things, from food to fuels. Algae tuned for fuel production can provide over half of its dry mass as fuel, which is typically obtained through crushing.

It is essentially a solar harnessing process. By definition, it requires more energy than it eventually gives off.

Which is perfectly fine and entirely the point - a mobile fuel.

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Only because we can rob Peter (natural gas) to create the heat to pay Paul (liquefy tar sand).  Natural gas is not far behind oil on the depletion curve...and that curve will get a lot steeper if we use our remaining natural gas reserves to liquefy tar sands.  There is talk of building nuclear reactors (fission), but that begs the question of why we should use uranium (itself a limited resource with a depletion curve about thirty years behind that of oil) to generate energy to be (largely) wasted to produce oil.  Why not fiss the uranium's energy directly into the power grid, if we're going to accept all the risks of fission reactors?

Or... we could switch to breeder reactors. I'm sure the Nuclear NIMBY folks will largely be dead by then, and we can get some saner people with a more realistic conceptualization of the problems at hand in the voting booths. "Nuclear, brownouts, or die. Pick one."

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Again, there's robbing Peter (the fossil fuel supply--do you have any idea how fossil fuel intensive U.S. agriculture is?) to pay Paul (using FOOD for fuel).

10% of America's fuel use, I believe.

Ironic, that the organic and free range movements may actually help with that.

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They don't have to vanish.  2008 demonstrated that.  All oil has to do is fail to meet demand, and the price soars, and the economy crashes.  Markets do not behave rationally.  If there is any real fear that oil production will fail to meet demand, the price surges.  Look at the Dutch tulip mania for what the psychology of scarcity can do to the price of something that served no practical use whatsoever, let alone the price of a commodity essential to industrial civilization.

Dutch Tulip mania? I could far more easily compare your panic to the horse manure crisis of the late 19th century.

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If algaculture isn't another dead end, and if we have time to perfect it, scale it, deploy it, and then retrofit the energy infrastructure to run on algae.  All big "ifs."

...the entire energy infrastructure has been capable of running on algacultured fuels - biodiesel, biogas, whatnot - since the fuels were first used. Algaculture does not make some new unique fuel, it makes fuels of the same type that we already are burning depending on process. Biodiesel - already legally required to be 2% in the state of Minnesota - is just the biggest industry for it.

So that's not an 'if'. It's done, a non-issue.

Regardless, supply is going to chase demand for several more years. After that, the drop does not go from "98% supply" to "0% supply". It goes from 98-92-84-74-62, etc. Alternative fuels - and algacultured biodiesel is just one aspect of one alternative - do not need to supply the entire planet completely in any near term scenario.

Offline setojurai

Re: So, the economy
« Reply #45 on: May 12, 2009, 09:14:45 PM »
Okay... here's the down and dirty AS I SEE IT.  As in, this is my personal opinion, and not political rhetoric.

Did Obama do well for our country?  I dunno.  He's done alot of silly things so far that don't seem to make sense... but alot of President's do that.  Washington included.

Is the Media making Obama out to be more than he is?  It certanly seems so.  The Media seems to keep saying that Obama Can Do No Wrong and that he's Perfect In Every Way.  I dunno... it just sounds like sheepdogging the country yet again, which happens anyways.

Is Bush the Devil?  No.  He was a War President, and War Presidents are always hated after their terms are over.  This war was mis-handled in many ways, but take it from someone who's actually been there.  There IS an end in sight.  Rebuilding is always the longest part of a war, espically when some people seem to have gotten the idea that trying to hurt people while we rebuild another nation is a Good Idea.

Is Socalism inherently good or evil?  I don't think so.  Look, even Totalitarianism looks good on paper.  Even Communism looks good on paper.  The reality of it is... does it work for us?  I don't know.  We'll have to find out.

Are people being stupid for having these horribly biased opinions all over the place?  Yeah, I think so.  I say stop listening to the political mudflinging from both sides and actually look at the issues.  If you have an idea on how things could be done better... then tell someone.  Try and tell your congressmen and women.  Maybe they might use it, you never know until you try, right?  Horribly biased opinions being loudly proclaimed, and stating that Your Opinion is better than Their Opinion is just plain silly.  Take a step back and listen to how these people state their opinions.  Don't they sound silly?  Not just our politicians, but anyone who does this.

So, in short, take a chill pill, do a bit of independent research, and form your own opinions on things, but remember that other people can have opinions too, and just because they're different from yours doesn't mean they are inherently incorrect or "wrong".  Debate is the art of exploring two opposing viewpoints to come to a mutual consensus, not shouting at the other person until they give up or go deaf.  I hope you enjoy my opinion on these matters.

Offline MercyfulFate

Re: So, the economy
« Reply #46 on: May 12, 2009, 11:33:53 PM »
Okay... here's the down and dirty AS I SEE IT.  As in, this is my personal opinion, and not political rhetoric.

Did Obama do well for our country?  I dunno.  He's done alot of silly things so far that don't seem to make sense... but alot of President's do that.  Washington included.

Is the Media making Obama out to be more than he is?  It certanly seems so.  The Media seems to keep saying that Obama Can Do No Wrong and that he's Perfect In Every Way.  I dunno... it just sounds like sheepdogging the country yet again, which happens anyways.

Is Bush the Devil?  No.  He was a War President, and War Presidents are always hated after their terms are over.  This war was mis-handled in many ways, but take it from someone who's actually been there.  There IS an end in sight.  Rebuilding is always the longest part of a war, espically when some people seem to have gotten the idea that trying to hurt people while we rebuild another nation is a Good Idea.

Is Socalism inherently good or evil?  I don't think so.  Look, even Totalitarianism looks good on paper.  Even Communism looks good on paper.  The reality of it is... does it work for us?  I don't know.  We'll have to find out.

Are people being stupid for having these horribly biased opinions all over the place?  Yeah, I think so.  I say stop listening to the political mudflinging from both sides and actually look at the issues.  If you have an idea on how things could be done better... then tell someone.  Try and tell your congressmen and women.  Maybe they might use it, you never know until you try, right?  Horribly biased opinions being loudly proclaimed, and stating that Your Opinion is better than Their Opinion is just plain silly.  Take a step back and listen to how these people state their opinions.  Don't they sound silly?  Not just our politicians, but anyone who does this.

So, in short, take a chill pill, do a bit of independent research, and form your own opinions on things, but remember that other people can have opinions too, and just because they're different from yours doesn't mean they are inherently incorrect or "wrong".  Debate is the art of exploring two opposing viewpoints to come to a mutual consensus, not shouting at the other person until they give up or go deaf.  I hope you enjoy my opinion on these matters.

The media making Obama out to be perfect really isn't true, even Rolling Stone, an extremely liberal magazine has been pointing out his mistakes. Just like his appointing of RIAA lawyers to the Justice Department, or his insane decision not to go after the torture proponents, then changing his mind.

Bush was an awful President, of course this is my opinion but it will be remembered that way, I'm sure of it. A War President? That's the weakest justification ever. America hasn't had a "war" since World War 2, Vietnam and Iraq were the biggest mistakes and failures we've ever undertaken as well.

Socialism is not evil, perhaps a fully Socialist system might be, but why not use the best parts here at home? Those who oppose Universal Healthcare really have weak justifications for doing so, for example.

Offline setojurai

Re: So, the economy
« Reply #47 on: May 13, 2009, 08:22:32 AM »
Okay... a "War" is defined as an invasion or use of force against another country authorized by a War Resolution from Congress.  That means Congress itself has to declare war against another country.  This happened in Iraq.  We declared war against the government of Saddam Hussein's Iraq, and we deposed that dictator, and replaced him with a Parliamentary system of government, which is something the US does a lot when we take over other nations and then decide not to keep them for fear of making ourselves blatantly look like the empire that we actually are.  So yes, despite your opinion that Iraq and Vietnam where "The greatest mistakes that our nation ever made", Iraq was indeed a legal war as defined by the given term.  Our reasons for going into that war may have been shaky or flat out WRONG, but that's up to debate or opinion.  The fact of the matter is, Congress did declare War.  Vietnam wasn't a War because Congress didn't declare it one, but lets not forget that Korea is under a cease fire, not an Armistice.  The Korean War never ended, so the US has actually been on war footing for around 60 years now, give or take a few years.  Like it or not, Bush was indeed a War President, just like his daddy before him.  Clinton's reign was marked with several police actions, but no wars.  Regan before Bush Sr fought the end of the Cold War, but that wasn't a declared war, just two countries knocking heads together in a polite fashion.  Not a War President.  Prior to Bush Sr, and then Bush Jr 8 years later (not counting Bush Sr's actual term of office), the last War President we had was FDR, who was our President during the closing years of World War II.  We've had many Police Actions since, but no major actual Wars until the Gulf War, and then the Iraq/Afghanistan Wars.

You can say what you like about any President but please at least acknowledge the facts about the matter.  I know you're one of those people who think that Vietnam was a "Mistake" and yes, it was even from the perspective of the facts.  If our President had allowed Ho Chi Min to gain the support he wanted from the US instead of forcing him away and allowing him to turn to the Soviet Union, then we never would have had to have gotten involved militarily in Vietnam.  But regardless of that, please don't spit on the men who served in that conflict.  It's not their fault that they got told to go to another country and die for someone else's political future.
Iraq did some good things.  It got rid of a dictator that we should have gotten rid of years ago but failed to do so due to political pressure from within.  We've spent a lot of time and money rebuilding a third world nation to it's previous First World status.  (yes, that's right, Iraq was once a First World Nation)  Was this the right thing to do?  I certainly think so.  Where their weapons of mass destruction in Iraq?  I don't know.  There might have been, but we gave Saddam PLENTY of time to get them out of the country and safely into Syria before we made our move.  There where COMPONENTS of chemical weapons found, but no chemicals.  We never found his famous chem-lab trucks either, because they where already gone.  If they turn up later in another country, that's fine, but there's no longer a way to link them to the Saddam Regime, or even a need to.  He's dead.  He was tried, convicted and executed by his own people in a legal court system for crimes against the Iraqi People.  Crimes that we as a nation tolerated and ignored.  Why did we tolerate these inhumane crimes?  It wasn't politically convenient to notice them.  There's a lot of horrific stuff that the US has ignored for political reasons.  Is that any more "Right" then Vietnam or Iraq?

Oh, by the way, yes, we did in fact win the Iraq War.  Major conflict ended with the destruction of the Saddam Regime.  What we where doing after that was a Rebuilding Phase, which is what we've been doing in other nations as well.  Serbia and Kosovo being two major  Rebuilding Phase areas we're involved in STILL.  That's right, we're still not done with Kosovo's Rebuilding Phase, and the fact that we've had to provide our own security while we rebuild Iraq hasn't helped speed the process any.  We destroyed a nation, from the ground up, and now we're building that nation back to the point that it can defend itself from it's neighbors.  Is that "wrong"?  Should we have abandoned Iraq as soon as we'd deposed the Regime?  Think about the realities of the situation and what we, as a conquering nation are responsible for, before declaring the war a "Mistake."  Cite your reasons as well.  I'd like to know specificly what you think was a mistake and why.  I'm curious.

Offline consortium11

Re: So, the economy
« Reply #48 on: May 13, 2009, 08:51:33 AM »
Well the idea was that housing prices would always increase as a hedge against that. ARMs tend to coincide rather disturbingly with predatory lending to say otherwise.

Variable Rate mortgages are pretty much the entire mortgage industry in Australia and make up a huge amount of Western Europe's mortgages. It's easy to jump on Variable Rates, but for decades they've done the job perfectly acceptably. General commercial sense indicates that it is in both parties best interests for the VR to have caps and checks on it, even in a time when you seemingly could guarentee house prices rising. The issue returns to HUD again... where groups were forced to give offers to people who couldn't afford a normal mortgage... which meant the usual caps didn't make economic sense. In those situations there was predatory lending no doubt... but there were also simple cases where no-one... from the consumer up... really bothered to read the paperwork.

A lot of investment banks were rather horribly leveraged. I'm not sure how you could say they were hedging their risks.

The hedging was to offset something else. Somewhere in their books they were part of a syndicate providing funding to say... a housing developer where they had limited security. Now, a downturn in the market would hit the developer hard and the bank would lose much of its lending. It hedged that by having CDS's on foreclosure's on its books... which would occur with the downturn on the market. That's a vastly simplified explanation... it would be a hugely complex analysis working out the risk profile of the bank at any given time.

The reason they ended up being so badly leveraged was that every CDO floating on the market contained subprime debt, whether they realised it or not. CDO's were a standard and effective way of doing buisness... but the glut of sub prime debt that corrupted them made them a poison pill. Here's where the institutions also failed... they began to buy and sell CDO's made of CDO's... CDS2/sup] and CDS's on the default of CDS's. They confused themselves and let short term greed overwhelm long term foresight... although, as I said before, in a world of Private Equity with 3-5 year exit dates and active shareholders a company is somewhat forced into being short term profit centred.

Allowing ARMs, negative amortization and effective zero leveraging had nothing to do it?

Variable Rates: No. Variable Rates are a perfectly legitimate type of mortgage. The misuse of them maybe, but most (even the predatory lending) had a certain amount of commercial sense behind them: very high risk so you demand high interest payments... with the cherry of foreclosure at the end. It went wrong... badly wrong, but Variable Rates themselves weren't to blame.

Negative Amortization: I'm no great fan of this, but it's also legitimate. Simply put, it's the objectively fairest way to deal with people missing payments: they agreed to a contract that dictated the terms on which they'd replay... they broke those terms, failed to pay back enough money and thus what they owe each payment should be added to the principle. Now, in examples where this (often combined with Variable Rates) was used to deliberately decieve consumers (as opposed to people simply not understanding what they were signing up for) then there should be hell to pay.

Zero Leveraging/Gearing: I'm not sure you mean zero (or even low) leveraging or gearing... as that would have avoided nearly everything. It's the high gearing that screwed up the system as companies sank under the debt they'd taken on due to the prospect of future profits. Now, I'm not sure if this should be banned as such... or simple commercial reality allowed to deal with it. You're highly leveraged and made huge profits? Great. You do the same and get bitten... deal with it. That's where the tension between allowing the market to correct itself and the bailouts to prevent suffering comes from. Another issue is that companies often didn't realise they were geared as highly as they were... mainly due to terrible accounting and a failure on the ratings agencies... which both should be stepped on, heavily.

Don't get me wrong, I don't argue that pushing subprime was a good idea.

Same here: I'm not trying to claim the financial industry was free from blame and apologise if it appears I have. As I said before they set up the dominoes to be pushed and didn't mitigate risk the way they should when confronted by HUD's inteference. Greed on their part was no doubt a contributing factor. But the starting point was HUD forcing more sub-prime onto the market and the point of no return was the prevention of an effective regulation of F&F... which would have given the industry a headstart on the issue as a whole.

But ideally we want a robust system where a single mistake - even on the administrative level - does not bring the entire house down. Literally in this case.

Agreed. But we're not talking a single mistake. We're talking a huge mistake on the administrative level where they tried to play politics, combined with a series of smaller (but just as bad) mistakes from the institutions themselves and another huge mistake from the adminstration. The market could have survived even with HUD's inteference and while sub-prime would have still been crippled, the rest would have been fine... but there were mistakes on every level. The market itself allowed sub-prime to spread throughout it and hopefully it learnt a lesson that won't be repeated.

I don't think they would have had any losses at all if they simply avoided home equity loans, which they are taking enormous writedowns to.

Sub-prime corrupted so much they'd have still taken losses. Syndicated lending on Projects and large construction jobs that have been canned, inter-bank lending, loans to car companies etc etc. They'd have mitigated their losses, but they were still going to be exposed... sub prime was the financial six degrees of Kevin Bacon for arounf 5 years... you simply couldn't escape it.

Well, the only way to do that would be mandating DTI ratios for loans. It wouldn't eliminate subprime but it would be err, a bit more sane.

It would also eliminate almost every entrepenour from ever doing anything...

The run was just the brick on the camel's back, really. Loss after loss, no end in site for the prospect of more and the FDIC only insured the first 100k.

Other banks have survived comparable losses due to government support. In the UK Northen Rock failed in a similar way... and near identical building societies survived. It's the arbitary hand of the government deciding who to help and who not to. Without the run Wumu could well still be here in a situation not that different to others who have accepted TARP money.

Escaping US regulations is not just a matter of moving to Singapore.

For a commodity trader? They couldn't move to Singapore (for the low taxes) and trade on SICOM, NCDEX, MCX, NMCE, MDEX, KANEX, TOCOM, TGE or IOB? Why would US regulations severely curtail their trading?

Would you be surprised if I considered that attitude the fault of the mass of nearsighted day traders more than HUD?

I'm not quite sure what you mean here. The attitude that a director has to work in the best interest of the company... and thus the shareholders? Or that commercial shareholders want the best returns they can get? Because if it's the second pension funds... not exactly considered the evil empire of the buisness world were getting just as antsy about lower returns as the private equity funds.

Bush and co were warned by the FBI during their first term - before Fannie and Freddy started serious buying - that a lot of shenanigans were going on in the mortgage arena.  HUD may not have helped but it was far from the only instigator as you originally declared.

F&F were first compelled in roughly 1995 (based on law passed in 1992-3) to start buying subprime loans under HUD's oversight. The article you linked to also doesn't say exactly when they briefed Bush on the issue so it's hard to say how that corresponds with HUD's large push in 2004. There's also a clear difference between actual mortgage fraud (which the article is about) and simple mortgage failure and bad business. Even if not HUD specifically (which I still submit was the direct cause of the current crises) the article also shows all the other failures at the government level which allowed the situation to get as bad as it did... so it's still government incompetance which is my basic premise.

But it has a way of saying "Look! Over there!"

And is normally wrong...

I can't find the stats immediately at hand but within the US isn't there a much higher gun crime rate in states with strict gun control than without... and it corresponds over to gun related assault/homicide rates. Does that automatically mean "gun control =  higher gun crime"? No, there are far more factors.

Iron, coal and steel also depend on the price of gas. Iron prices are also in part prenegotiated and there were fears of shortages (why, I have no idea).

Everything depends on the price of gas. Nickel depends on the price of gas, is traded and speculated upon, and its prices fell...

Regardless, a speculation drive like this depends on the idea that the price of a commodity is always going to rise. Any commodity that risks falling in price is not something people would try to pull the same stunt with.

That's only if you believe speculation pre-empts the price rising or lowering on the market... evidence shows it doesn't... it follows the market. So while the price is rising there will be a drive... when it begins to fall it begins to slip off. The price of oil was never "always going to rise"... the market was aware of the political issues that shaped the price (notably trouble with Iran), which is why the sabre-rattling was always followed by a march up in prices. A cooling in the tension would always lead to a lowering in prices.

And again, nickel saw huge speculative interest... and the price fell... badly... yet there was still speculation.

Err, no.

Speculation on futures requires no such thing. "I'm going to buy a thousand barrels in June of 2009 for $63k" etc. does not magically increase my inventory, and I can later sell those futures off to someone else and make a few thousand, and so on. The circle jerk was going on behind closed doors until the loophole was closed.

Because speculators aren't the only people using futures. Airlines, trucking companies, the military, shipping companies, governments... all use futures to get certainty over the price they'll be paying. If speculation was the only thing driving the upwards surge in prices then all of these groups would have increased inventories as they took the futures they'd bought and stockpiled. They didn't. And the only explanation for that was that there wasn't enough oil on the market for them to be able to do that. Which makes it supply and demand.

Let's also be frank here: speculation can drive up the futures price of a commodity, but the spot price only follows this if that speculation somehow restricts the current supply to consumers. In this case there would be inventories forming as investors horde supplies for down the road and people who are dependant on oil stockpile. Inventories aren't forming and the spot price was rising. That's supply and demand causing it, not speculation.

Edit: I'm enjoying this... thanks for the debate  ;D
« Last Edit: May 13, 2009, 10:28:02 AM by consortium11 »

Offline Vekseid

Re: So, the economy
« Reply #49 on: May 13, 2009, 04:04:22 PM »
Bah, lost post. Oh well.

Variable Rate mortgages *snip*

I was, of course, referring to lending practices within the United States. ARMs were relatively new, and adapted for a market that didn't really apply to much of the country. They were frequently combined with negative amortization and obfuscated language.

The first time I checked to see that you're not in the US, you've probably never seen some of these agreements that loan pushers would try to shove on people, especially new home buyers. Often, they were advertised with just the 'introductory rate', which was sometimes not the accrual rate, just the rate you would have to pay for the first few years.

For example, when I got my house I received notices for interest rates anywhere from the 1.9% to 3.9% rates - below prime. What these some were, were negatively amortized ARMs where the real interest rate was 8% or so, and the balance would accrue even if you didn't cover it all.

Yes, it was frequently fraud, on a massive scale, but the FBI's hands were tied with the war on terror and Bush and his staff prevented diverting more resources towards this issue.

Regardless, your claim:
Em, the direct cause of the crises was government inteference.

HUD forcing Fannie mat and Freddy mac to purchase loans for people to buy houses they couldn't afford and then the Democrats of the Senate Banking comittee prevented any serious regulation of them occuring (on partisan lines to make it even worse).

Calling government interference the direct cause is false. There were plenty of greedy scumbags who thought nothing of destroying people's lives - and knew they were going to ahead of time - factoring into it.

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The hedging was to offset something else. *snip*

Zero Leveraging/Gearing: I'm not sure you mean zero (or even low) leveraging or gearing... as that would have avoided nearly everything. *snip*

In the US, banks are required by law to maintain a certain amount of leverage. However, investment banks, exempt from these rules, sometimes had leverage on the order of one dollar for every hundred they had in debts.

Or worse.

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Same here: I'm not trying to claim the financial industry was free from blame and apologise if it appears I have. As I said before they set up the dominoes to be pushed and didn't mitigate risk the way they should when confronted by HUD's inteference. Greed on their part was no doubt a contributing factor. But the starting point was HUD forcing more sub-prime onto the market and the point of no return was the prevention of an effective regulation of F&F... which would have given the industry a headstart on the issue as a whole.

The issue with that, is that the FBI saw this coming in 2002 - two years before F&F became seriously involved. Many Americans, myself included, saw this coming in 2003. F&F began serious subprime pushing in 2004, and, ultimately, during this period, it was the republicans - not the democrats - who championed the deregulation that permitted this. And in the case of Bush's office, actively and willfully prevented proper investigations from occurring when they could have put a stop to this.

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Agreed. But we're not talking a single mistake. We're talking a huge mistake on the administrative level where they tried to play politics, combined with a series of smaller (but just as bad) mistakes from the institutions themselves and another huge mistake from the adminstration. The market could have survived even with HUD's inteference and while sub-prime would have still been crippled, the rest would have been fine... but there were mistakes on every level. The market itself allowed sub-prime to spread throughout it and hopefully it learnt a lesson that won't be repeated.

Be careful with the term 'the market'. 'The market' did not make these stupid decisions, various bank (or things that pretended to be kinda sorta banks) executives did, which is an altogether different problem - executives should be held responsible for the messes they create.

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Sub-prime corrupted so much they'd have still taken losses. Syndicated lending on Projects and large construction jobs that have been canned, inter-bank lending, loans to car companies etc etc. They'd have mitigated their losses, but they were still going to be exposed... sub prime was the financial six degrees of Kevin Bacon for arounf 5 years... you simply couldn't escape it.

If Well's Fargo's losses total only 3.2 billion over 12 billion dollars in writedowns in two years, with a supposed majority of it being due to home equity loans, that's still a minimum of 3 billion in profit.

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It would also eliminate almost every entrepenour from ever doing anything...

Not sure where you get that. On one hand you have lower end small business loans where this isn't an issue, and on the other there are investors. To say nothing of people who don't need significant funds. The value I provide Elliquiy in terms of labor is around a thousand a month or so, coding quotes for the new CMS I'm building for the place run from the high six figures to low seven.

Is it going to cost me that? Hell no.

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Other banks have survived comparable losses due to government support. In the UK Northen Rock failed in a similar way... and near identical building societies survived. It's the arbitary hand of the government deciding who to help and who not to. Without the run Wumu could well still be here in a situation not that different to others who have accepted TARP money.

Or Goldman Sachs seeding every level of the US financial system with cronies.

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For a commodity trader? They couldn't move to Singapore (for the low taxes) and trade on SICOM, NCDEX, MCX, NMCE, MDEX, KANEX, TOCOM, TGE or IOB? Why would US regulations severely curtail their trading?

Because the regulated American markets are either a source for just about every good imaginable, or a potential source. Play games in other markets and people just won't buy.

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I'm not quite sure what you mean here. The attitude that a director has to work in the best interest of the company... and thus the shareholders? Or that commercial shareholders want the best returns they can get? Because if it's the second pension funds... not exactly considered the evil empire of the buisness world were getting just as antsy about lower returns as the private equity funds.

Often the former, some frequently even cite the Chrysler decision. Fallacious or not, people are often looking to next quarter rather than ten years from now.

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F&F were first compelled in roughly 1995 (based on law passed in 1992-3) to start buying subprime loans under HUD's oversight. The article you linked to also doesn't say exactly when they briefed Bush on the issue so it's hard to say how that corresponds with HUD's large push in 2004. There's also a clear difference between actual mortgage fraud (which the article is about) and simple mortgage failure and bad business. Even if not HUD specifically (which I still submit was the direct cause of the current crises) the article also shows all the other failures at the government level which allowed the situation to get as bad as it did...

It mentions intelligence going back to 2002.

Intelligence dating from 2002 points to the Gramm-Leach-Bliley Act in 1999 far more than a twelve year long rise for the subprime crisis.

That's not just my opinion, either. Warren Buffet and Paul Krugman both are not fond of Mr. Gramm.

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so it's still government incompetance which is my basic premise.

That's the premise of everyone who's ever argued politics on every forum that ever was so much as the glimmer in an administrator's eye. That's like saying "I'm breathing now."

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And is normally wrong...

I can't find the stats immediately at hand but within the US isn't there a much higher gun crime rate in states with strict gun control than without... and it corresponds over to gun related assault/homicide rates. Does that automatically mean "gun control =  higher gun crime"? No, there are far more factors.

The highest rates of gun crime correlate far better to a mix of corruption and (of course) availability. IE Washington D.C., Russia, and so on.

Which ties to my point rather nicely. The idea behind correlation not equaling causation is you may be overlooking coincidence or other causes.

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Everything depends on the price of gas. Nickel depends on the price of gas, is traded and speculated upon, and its prices fell...

Nickel is not smelted or forged with fossil fuels like iron and steel are.

Beyond that, though, the Enron loophole only exempted energy trades.

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That's only if you believe speculation pre-empts the price rising or lowering on the market... evidence shows it doesn't...*snip*

...Nelson Hunt never ring a bell?