Frugality is the New Fashion
David Rosenberg was Chief Economist for Merrill Lynch for many years, but I think their big corporate/institutional clients got tired of his consistently bearish warnings on the U.S. economy and so he left in the upheaval of 2009 for a smaller firm in Toronto. Many of us who valued his advice for keeping our money safe when the markets were tumbling, continue to follow him. (You can get his commentaries without being a client of the firm). Here are his thoughts on 2010.
The defining characteristic of this asset deflation and credit contraction has been the implosion of the largest balance sheet in the world — the U.S. household sector. Even with the bear market rally in equities and the tenuous recovery in housing in 2009, the reality is that household net worth has contracted nearly 20% over the past year-and-a-half, or an epic $12 trillion of lost net worth, a degree of trauma we have never seen before. As households begin to assess the shock and what it means for their retirement needs, the impact of this shocking loss of wealth on consumer spending patterns in the future is likely going to be very significant. Frugality is the new fashion and likely to stay that way for years as attitudes toward discretionary spending, homeownership and credit undergo a secular shift towards prudence and conservatism.
As the Wall Street Journal points out this morning, the recent stock market rally has not really affected the balance sheet of the average household.
With $12 trillion in net worth lost in the past two years, thanks to stock and house-price declines, consumers likely will save some income to pay down debt.
That consumer caution will make life harder for businesses, keeping them slow to spend and hire—another good reason for consumers to save.
I have been trying to communicate that we are entering a new world order for a while. I am still worried that Gethner and Summers believe there job is to get us back to 1999 or 2005–a mall driven consumer frenzy. But it’s not going to happen.
What’s Plan B?
When I decided to vote for Obama in the primaries, the argument that ultimately swayed me was that we would have new voices in the cabinet, fresh thoughts to help solve many of the crises that Bush so thoughtfully left for us.
I have to say I am disappointed, especially by his choice of an economics team. Just today on the radio I heard of a site called post-autistic economics. http://www.paecon.net/
I haven’t had a chance to look at the site extensively, but what I have read has crystallized a lot of what bothers me about any policy discussion today, the utter dominance of neoclassical economic thought and how stuck people are in that mindset. Hopefully, this movement will be the beginning of a transition to a more rational, evidence based economics that will begin to consider a lot of the larger questions that are traditionally not even asked because those issues don’t exist inside the bubble of neoclassical thought.
Here is the tease “Following WWII, the United States increasingly came to determine (one might say dictate) the shape of economics worldwide, while within the United States the sources of influence became concentrated and circumscribed to an absurd degree. This state of affairs, which persists to the present day, was engineered in significant part by the US Department of Defense, especially its Navy and Air Force.3 Beginning in the 1950s it lavishly funded university research in mathematical economics. ….
In 1965, RAND created a fellowship program for economics graduate students at the Universities of California, Harvard, Stanford, Yale, Chicago, Columbia and Princeton, and in addition provided postdoctoral funds for those who best fitted the mold. These seven economics departments along with MIT’s, an institution long regarded by many as a branch of the Pentagon, have come to dominate economics globally to an astonishing extent. ”
Yes they give examples, just go look. In fact, ignore me and just go look. You’ll be amazed
When I decided to vote for Obama in the primaries, the argument that ultimately swayed me was that we would have new voices in the cabinet, fresh thoughts to help solve many of the crises that Bush so thoughtfully left for us.
I have to say I am disappointed, especially by his choice of an economics team. Just today on the radio I heard of a site called post-autistic economics. http://www.paecon.net/
I haven’t had a chance to look at the site extensively, but what I have read has crystallized a lot of what bothers me about any policy discussion today, the utter dominance of neoclassical economic thought and how stuck people are in that mindset. Hopefully, this movement will be the beginning of a transition to a more rational, evidence based economics that will begin to consider a lot of the larger questions that are traditionally not even asked because those issues don’t exist inside the bubble of neoclassical thought.
Here is the tease “Following WWII, the United States increasingly came to determine (one might say dictate) the shape of economics worldwide, while within the United States the sources of influence became concentrated and circumscribed to an absurd degree. This state of affairs, which persists to the present day, was engineered in significant part by the US Department of Defense, especially its Navy and Air Force.3 Beginning in the 1950s it lavishly funded university research in mathematical economics. ….
In 1965, RAND created a fellowship program for economics graduate students at the Universities of California, Harvard, Stanford, Yale, Chicago, Columbia and Princeton, and in addition provided postdoctoral funds for those who best fitted the mold. These seven economics departments along with MIT’s, an institution long regarded by many as a branch of the Pentagon, have come to dominate economics globally to an astonishing extent. ”
Yes they give examples, just go look. In fact, ignore me and just go look. You’ll be amazed
David Rosenberg has been beyond frustrated that he missed the last ( month mega rally in the stock market and is still beating the same –consumers will never spend again —drum– Jon–you also missed this rally if you go back to your older posts and I guess if I was a school teacher with little incentive–financially–to work harder to make more money I would also think that no one will spend again–my guess is that the upside will be stronger then most people think not slower–our economy is a live for today environment and I don’t believe that has changed—
David Rosenberg has been beyond frustrated that he missed the last ( month mega rally in the stock market and is still beating the same –consumers will never spend again —drum– Jon–you also missed this rally if you go back to your older posts and I guess if I was a school teacher with little incentive–financially–to work harder to make more money I would also think that no one will spend again–my guess is that the upside will be stronger then most people think not slower–our economy is a live for today environment and I don’t believe that has changed—
My indicators come from Sushi Creamcheese sitting at the bar regaling the hapless fish chopper that she only started her Christmas shopping yesterday, her partner consultant husband is headed to Alaska without her and the kids her sister and children are coming to stay with her and she’ll have three built-in babysitters so she might be going out… wink wink. When she said she was, at 42, losing her hearing while her husband was losing his eyesight, I almost bought a tequila for the Japanese waitress to give her after I left the restaurant. It would have been worth it for the price of the floor show.
Sit on your wallets. Starve the rich of oxygen. Buy local. Burn down Wal-Mart. It’s us or them.
My indicators come from Sushi Creamcheese sitting at the bar regaling the hapless fish chopper that she only started her Christmas shopping yesterday, her partner consultant husband is headed to Alaska without her and the kids her sister and children are coming to stay with her and she’ll have three built-in babysitters so she might be going out… wink wink. When she said she was, at 42, losing her hearing while her husband was losing his eyesight, I almost bought a tequila for the Japanese waitress to give her after I left the restaurant. It would have been worth it for the price of the floor show.
Sit on your wallets. Starve the rich of oxygen. Buy local. Burn down Wal-Mart. It’s us or them.
Bad news for the holiday retailers. Good news for Jerry Brown redux?
Bad news for the holiday retailers. Good news for Jerry Brown redux?
My parents bought nothing on credit. The took out a mortgage on the old family house to pay for remodeling it. They paid off the mortgage and celebrated. When they wanted to buy a car…about ever eleven or twelve years or so…they went to the dealer and wrote a check. They raised a couple of kids and had good lives… Seems like a good way to go…
My parents bought nothing on credit. The took out a mortgage on the old family house to pay for remodeling it. They paid off the mortgage and celebrated. When they wanted to buy a car…about ever eleven or twelve years or so…they went to the dealer and wrote a check. They raised a couple of kids and had good lives… Seems like a good way to go…
Didn’t miss the rally Doug. Bought a good bit of Apple at $95 in February. I’m just saying the banks are still holding alot of bad paper and real estate. This thing isn’t over yet.
Didn’t miss the rally Doug. Bought a good bit of Apple at $95 in February. I’m just saying the banks are still holding alot of bad paper and real estate. This thing isn’t over yet.
Rick you are my kind of family
Rick you are my kind of family
Sir:
United States of America is technically a bankrupt country. It had defacto declared bankruptcy in August 1971 when President Nixon “closed the gold window”. Secondly, according to 31 USC 3101(b), the maximum debt authorized by the US Congress was $8,184,000,000,000. The United States exceeded the debt limit set by Congress without any legal authority. So the worm had entered the apple long ago. Presently the Federal Government Debt reached + $12 trillion in December 2009, while America’s Total Debt Report $ 57 Trillion – and soaring.
Please recall the time when, the Americans cut a deal with the Saudis, resulting in OPEC assigning all its sales in US dollars. After that, every nation buying oil had to use US$’s, i.e. they exchanged their goods and services for dollars, which USA had printed. Thus, USA bought oil, free by printing US$’s. It was the ultimate free lunch at the expense of the world.
This deceit was unravelled in 2000, when Saddam began selling Iraq’s oil for Euro, nullifying the cozy arrangement between US and OPEC. Saddam had to be overthrown.
Imagine how much worst it will be for the USA to buy oil in another currency instead of US$’s.
Further in June of 2009 meetings held in Yekaterinburg, Russia, between Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation of Shanghai Cooperation Organization. The United States, asked to attend, but was denied admittance. The gathering was considered by many economists as, “the most important meeting of the 21st century so far. ”
These countries were in principle adopting the first formal and schematic steps to replace the dollar as the world’s reserve currency. If in time they succeed, the dollar in all likelihood will undergo a spectacular and dramatic fall in its value.
The fallouts of the 2008 Financial Crisis will be in multiple quantifiers – but it will translate mainly in ghastly transformations for American life-style and mentality of “shop till you drop.”
Namely the monetary value of imports, including oil, will skyrocket, interest rates will mount and jobs will haemorrhage at a rate that will make the 10 percent figure look like boom times. State and federal services will undergo cut downs or close all together. With fall of the American dollar, the USA will look something like Zimbabwe of today.
America’s annual debt servicing requirement is equivalent to 41% of the GDP of the year 2008.
The forecasts however indicated that things will be worser:
In year 2010, it would rise to 62% of its annual GDP.
In year 2018, it would rise to 82% of its annual GDP.
The official American defence budget for fiscal year 2008 was $623 billion, even before expenses for nuclear research were added. The economists and strategists are well aware of the fact that the collapse of the US$ also means the collapse America’s military domination. The present military spending is unsustainable without the vicious cycle of heavy borrowing.
America’s balance-of-payment deficits for the trade have been in negative and red, because America imports more and exports less. The most injurious but durable balance-of-payment deficit for the past 50 years has been military spending by the Pentagon spending. This spending for the for the most part that has been responsible for the persistent balance-of-payments deficit.
To provide for the continuing war economy America has been inundating the world with dollars. People and governments, who receive these dollars, convert them to local currency through their central banks. The central banks in those countries then have a second problem at hand. If the central bank does not expend the money in the United States then the exchange rates for their currencies vis-a vis against the dollar falls. In the process the local exporters become penalised, because it pushes down their currencies and increases their costs to produce the goods. This has permitted and appropriated America to:
Print money without control,
Freedom to buy limitless imports,
Invest in foreign companies, and
Provide funding for the military expenditure and expansion.
The foregoing mechanicism also makes certain that foreign countries like China will keep buying the US treasury bonds.
However this cycle seems like coming to an end. With USA paying for its oil in foreign currencies, and the dollar no more a reserve currency – it will not have the luxury to flood central banks, no one will need to buy American T- bills, and the house of cards will fall.
It is not whimsical press mongering that people like Elizabeth Warren talk of, “America Without a Middle Class” because the consequential fallout from de-dollarization of the world will interpret into increase the cost of daily living, ranging from food prices to gasoline and medical care, will become unmanageable for all but a few as the dollar plummets. States will witness evaporation of pension funds. The government will be liquidate and privatise infrastructure and that means roads, transportation to companies. There will be progressive private ownerships of utilities, it may be regulated by the government but will not be subsidized. Real estate commercial and private will depreciate to abysmally low level, and Americans will have to accept monolithic losses. Foreclosures will be epidemic. Borrowing cheap capital, as per vogue, from banks and lending houses will be hard. Empty stores and boarded-up houses will be a common sight. There will be long lines at soup kitchens and superfluity of homeless – present Japan is a good example.
Financial crisis in USA had many causes. It had its origins in the imbalance in saving and consumption, in the widely misunderstood and use of financial instruments, in short-sightedness and inordinate leverage at financial institutions. But it was also the product of basic failures in financial supervision and regulation.
American framework for financial regulation is riddled with gaps, weaknesses and jurisdictional overlaps, and suffers from an outdated conception of financial risk. Needless to say the financial crisis has been a life changing event.
Geithner and Summers can dream of anything. The world has moved on. It is going to be a sad story, kind of a story that people sit on the ground and tell of great hopes crushed and great states lost forever.
Regards
Sir:
United States of America is technically a bankrupt country. It had defacto declared bankruptcy in August 1971 when President Nixon “closed the gold window”. Secondly, according to 31 USC 3101(b), the maximum debt authorized by the US Congress was $8,184,000,000,000. The United States exceeded the debt limit set by Congress without any legal authority. So the worm had entered the apple long ago. Presently the Federal Government Debt reached + $12 trillion in December 2009, while America’s Total Debt Report $ 57 Trillion – and soaring.
Please recall the time when, the Americans cut a deal with the Saudis, resulting in OPEC assigning all its sales in US dollars. After that, every nation buying oil had to use US$’s, i.e. they exchanged their goods and services for dollars, which USA had printed. Thus, USA bought oil, free by printing US$’s. It was the ultimate free lunch at the expense of the world.
This deceit was unravelled in 2000, when Saddam began selling Iraq’s oil for Euro, nullifying the cozy arrangement between US and OPEC. Saddam had to be overthrown.
Imagine how much worst it will be for the USA to buy oil in another currency instead of US$’s.
Further in June of 2009 meetings held in Yekaterinburg, Russia, between Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation of Shanghai Cooperation Organization. The United States, asked to attend, but was denied admittance. The gathering was considered by many economists as, “the most important meeting of the 21st century so far. ”
These countries were in principle adopting the first formal and schematic steps to replace the dollar as the world’s reserve currency. If in time they succeed, the dollar in all likelihood will undergo a spectacular and dramatic fall in its value.
The fallouts of the 2008 Financial Crisis will be in multiple quantifiers – but it will translate mainly in ghastly transformations for American life-style and mentality of “shop till you drop.”
Namely the monetary value of imports, including oil, will skyrocket, interest rates will mount and jobs will haemorrhage at a rate that will make the 10 percent figure look like boom times. State and federal services will undergo cut downs or close all together. With fall of the American dollar, the USA will look something like Zimbabwe of today.
America’s annual debt servicing requirement is equivalent to 41% of the GDP of the year 2008.
The forecasts however indicated that things will be worser:
In year 2010, it would rise to 62% of its annual GDP.
In year 2018, it would rise to 82% of its annual GDP.
The official American defence budget for fiscal year 2008 was $623 billion, even before expenses for nuclear research were added. The economists and strategists are well aware of the fact that the collapse of the US$ also means the collapse America’s military domination. The present military spending is unsustainable without the vicious cycle of heavy borrowing.
America’s balance-of-payment deficits for the trade have been in negative and red, because America imports more and exports less. The most injurious but durable balance-of-payment deficit for the past 50 years has been military spending by the Pentagon spending. This spending for the for the most part that has been responsible for the persistent balance-of-payments deficit.
To provide for the continuing war economy America has been inundating the world with dollars. People and governments, who receive these dollars, convert them to local currency through their central banks. The central banks in those countries then have a second problem at hand. If the central bank does not expend the money in the United States then the exchange rates for their currencies vis-a vis against the dollar falls. In the process the local exporters become penalised, because it pushes down their currencies and increases their costs to produce the goods. This has permitted and appropriated America to:
Print money without control,
Freedom to buy limitless imports,
Invest in foreign companies, and
Provide funding for the military expenditure and expansion.
The foregoing mechanicism also makes certain that foreign countries like China will keep buying the US treasury bonds.
However this cycle seems like coming to an end. With USA paying for its oil in foreign currencies, and the dollar no more a reserve currency – it will not have the luxury to flood central banks, no one will need to buy American T- bills, and the house of cards will fall.
It is not whimsical press mongering that people like Elizabeth Warren talk of, “America Without a Middle Class” because the consequential fallout from de-dollarization of the world will interpret into increase the cost of daily living, ranging from food prices to gasoline and medical care, will become unmanageable for all but a few as the dollar plummets. States will witness evaporation of pension funds. The government will be liquidate and privatise infrastructure and that means roads, transportation to companies. There will be progressive private ownerships of utilities, it may be regulated by the government but will not be subsidized. Real estate commercial and private will depreciate to abysmally low level, and Americans will have to accept monolithic losses. Foreclosures will be epidemic. Borrowing cheap capital, as per vogue, from banks and lending houses will be hard. Empty stores and boarded-up houses will be a common sight. There will be long lines at soup kitchens and superfluity of homeless – present Japan is a good example.
Financial crisis in USA had many causes. It had its origins in the imbalance in saving and consumption, in the widely misunderstood and use of financial instruments, in short-sightedness and inordinate leverage at financial institutions. But it was also the product of basic failures in financial supervision and regulation.
American framework for financial regulation is riddled with gaps, weaknesses and jurisdictional overlaps, and suffers from an outdated conception of financial risk. Needless to say the financial crisis has been a life changing event.
Geithner and Summers can dream of anything. The world has moved on. It is going to be a sad story, kind of a story that people sit on the ground and tell of great hopes crushed and great states lost forever.
Regards
One of the supporters of PAECON is Prof Steve Keen who says of neoclassical economics that it, “appears to be superficially intelligent, almost all of it is intellectual drivel”.
He also writes an excellent blog – see in particular one of his more recent posts for context of the GFC and comments on how neoclassical economists got us into this mess.
http://www.debtdeflation.com/blogs/2009/12/01/debtwatch-no-41-december-2009-4-years-of-calling-the-gfc/
One of the supporters of PAECON is Prof Steve Keen who says of neoclassical economics that it, “appears to be superficially intelligent, almost all of it is intellectual drivel”.
He also writes an excellent blog – see in particular one of his more recent posts for context of the GFC and comments on how neoclassical economists got us into this mess.
http://www.debtdeflation.com/blogs/2009/12/01/debtwatch-no-41-december-2009-4-years-of-calling-the-gfc/
This sentiment was echoed nicely in a piece Bloomberg ran yesterday.
It was referring to increasing strength in the economy, and a steady gain in the household net worth. So happy days are (almost) here again?
Not so fast, says Mark Vitner, a senior economist at Wells Fargo Securities Inc.
Get that? People are rethinking their entire lives. The emerging patterns are being shaped to a once unimaginable degree by the longest-term set of considerations an individual can have.
We’re not trying to get “back” to normal. That’s gone. Now, it’s about establishing a new normal, which is having to happen from scratch.
A really interesting corollary comes from today’s WSJ, which reports on the growing phenomena of mortgage default being followed not by banishment to a barren plane of ash and ruin, but to generally happier, more stable, and yes, more comfortable circumstances than those provided by commitment to one’s debts.
There’s discussion of moral obligation, of course, but in an exceptionally shitty piece of relativism by the Journal, it is totally one sided (i.e. blaming the victims by turning a blind eye to the crime).
Specifically, it calculates that the ‘loss’ which could result from this trend may exceed $400 billion, all of which would accrue “to banks and investors”.
Never mind that, were it not for massive taxpayer bailouts, those banks and investors would have simply been wiped from the face of the earth. Instead, they got money from the same people they’re now happy to break – and all to make good on their own bad gambling streak.
Really, it’s not as though any of this bubble money was produced legitimately in the first place. Chalking up the inevitable reality check as a ‘loss’ is a bit like a bank robber trying to write-off the value of cash seized in a police raid.
But again, that goes unmentioned. This lack of moral clarity from an journalistic institution that was supposed to be a source of unvarnished truth is very distressing. They really don’t see that years worth of cheer-leading had a role in this decay.
They’re happy to report, however, that many individuals still regard defaulting on a mortgage as a moral failure. On one level, this is a good thing, as it suggests that the broader public didn’t fall into the same morass as the investment class.
However, the article also notes that 82% of people would be more likley to default if someone they know did they same – which, of course, is happening at an accelerating rate.
And this is where the psychology gets interesting. After all, if people are talking about their friends instead of an abstract hypothetical, they’re far more likley to make allowances – especially when their friends are also describing their choice as an absolute last resort, taken only when the (guilty as sin) banks they’re dealing with refused to budge an inch.
Of course, this is where the Journal goes silent. Sure, they’re happy to dewll on the moral anguish of individuals at the ends of their ropes. But there’s not a word about the shocking lack of moral concern on the part of bankers who spent years atomizing the titles they were holding and casting the fragments to the four winds. The image of mortgage holders worrying about their obligations is that of a wife who has been beaten within an inch of her life, yet agonizing over leaving her drunken, thieving, cheat of a husband because, after all “she made a commitment”.
Of course, it’s not quite that simple. On one level, banks unable to renegotiate mortgages are right when they say “there’s nothing we can do, because there isn’t anything they can do – not after transferring title to your deed into the hands of a towering smoke demon who is no longer returning their calls.
Sadly, the writers, editors, and publishers of this piece seem to have no interest in covering this Original Sin – not after they spent so many years ignoring it, or being too oblivious to even see.
So yes, perhaps there is a level of extra-moral violence in the behavior of growing numbers of ex-homeowners. But no one (except the Journal) can accuse them of throwing the first punch. And when it comes to bailouts, this is the one group that hasn’t gotten a thing.
So now, much larger moral frameworks are coming undone. Which is not to say that individual commitment to sticking it out could preserve anything. Not when the costs for this dedication remain so one-sided.
Had the Obama administration responded with the terrifying authority that the situation demands, perhaps they could have preserved a broader base of ethics that’s now in decline. Had the myth of ‘talent’ been punctured by a willingness to prosecute actual wrongdoing, things may be different.
But instead of hearing about how many spectacularly guilty people are being sent to prison, and how shareholders in toxic shitpits like the ratings agencies are being told to go hang, the news is covering stories about top bankers at GS deciding to take stock instead of cash due to ‘concern’ about ‘perceptions’ after having amassed the biggest bonus pool in Wall Street history.
Wait, what’s that? It may only have tied the pools from the bubble’s peak? Oh gosh, forgive me. In that case, we’re just maintaining continuity. I’d forgotten that this is a god-given right, and that bankers – under no circumstances – will ever be forced to suffer exposure to, you know, the actual economy.
Never mind that banking was once a utility business – the natural home for Ivy League C students (I hope I don’t offend anyone by saying Dartmouth, in particular, seems like the place for bankers to come from.)
As a sector, banking’s fortunes rose and fell with the those of the broader economy, and you know what? That’s the way it ought to be. But then the 80′s happened. That’s when the brains moved in. And it’s because of this ‘talent’ that we’ve seen such a great decoupling.
Obama’s job was not to save the banking system. I was to save the economy. So yes, you do what you must in a moment of crisis to prevent total collapse. But once the situation has been stabilized, you set out to make that part of the economy as inhospitable to “talent” as you possibly can. After all, we have an economy to rebuild. Parking all those fine minds in the parasite lounge is no way to do that. You need to kick them out of the Wall Street opium den, and tell them to get real jobs. Create some too, while they’re at it. And forget about banking. From here on, it’s going to be about as glamorous as the electric company.
But that’s not what happened. Not even close. And once private and public institutions fail to this degree, people are right to (finally) recalibrate their own moral compasses – especially when their own unwavering commitments had become the basis for rank exploitation.
So now there’s that to contend with as well. Not only are people having to rebuild their balance sheets, they’re having to reconstruct a viable code of ethics to go with it.
Again, reconstruction is going to take a long time, and the outcome is likley to be more pronounced than the difference between a Prius and a Model-T.
But at least it’s begun.
This sentiment was echoed nicely in a piece Bloomberg ran yesterday.
It was referring to increasing strength in the economy, and a steady gain in the household net worth. So happy days are (almost) here again?
Not so fast, says Mark Vitner, a senior economist at Wells Fargo Securities Inc.
Get that? People are rethinking their entire lives. The emerging patterns are being shaped to a once unimaginable degree by the longest-term set of considerations an individual can have.
We’re not trying to get “back” to normal. That’s gone. Now, it’s about establishing a new normal, which is having to happen from scratch.
A really interesting corollary comes from today’s WSJ, which reports on the growing phenomena of mortgage default being followed not by banishment to a barren plane of ash and ruin, but to generally happier, more stable, and yes, more comfortable circumstances than those provided by commitment to one’s debts.
There’s discussion of moral obligation, of course, but in an exceptionally shitty piece of relativism by the Journal, it is totally one sided (i.e. blaming the victims by turning a blind eye to the crime).
Specifically, it calculates that the ‘loss’ which could result from this trend may exceed $400 billion, all of which would accrue “to banks and investors”.
Never mind that, were it not for massive taxpayer bailouts, those banks and investors would have simply been wiped from the face of the earth. Instead, they got money from the same people they’re now happy to break – and all to make good on their own bad gambling streak.
Really, it’s not as though any of this bubble money was produced legitimately in the first place. Chalking up the inevitable reality check as a ‘loss’ is a bit like a bank robber trying to write-off the value of cash seized in a police raid.
But again, that goes unmentioned. This lack of moral clarity from an journalistic institution that was supposed to be a source of unvarnished truth is very distressing. They really don’t see that years worth of cheer-leading had a role in this decay.
They’re happy to report, however, that many individuals still regard defaulting on a mortgage as a moral failure. On one level, this is a good thing, as it suggests that the broader public didn’t fall into the same morass as the investment class.
However, the article also notes that 82% of people would be more likley to default if someone they know did they same – which, of course, is happening at an accelerating rate.
And this is where the psychology gets interesting. After all, if people are talking about their friends instead of an abstract hypothetical, they’re far more likley to make allowances – especially when their friends are also describing their choice as an absolute last resort, taken only when the (guilty as sin) banks they’re dealing with refused to budge an inch.
Of course, this is where the Journal goes silent. Sure, they’re happy to dewll on the moral anguish of individuals at the ends of their ropes. But there’s not a word about the shocking lack of moral concern on the part of bankers who spent years atomizing the titles they were holding and casting the fragments to the four winds. The image of mortgage holders worrying about their obligations is that of a wife who has been beaten within an inch of her life, yet agonizing over leaving her drunken, thieving, cheat of a husband because, after all “she made a commitment”.
Of course, it’s not quite that simple. On one level, banks unable to renegotiate mortgages are right when they say “there’s nothing we can do, because there isn’t anything they can do – not after transferring title to your deed into the hands of a towering smoke demon who is no longer returning their calls.
Sadly, the writers, editors, and publishers of this piece seem to have no interest in covering this Original Sin – not after they spent so many years ignoring it, or being too oblivious to even see.
So yes, perhaps there is a level of extra-moral violence in the behavior of growing numbers of ex-homeowners. But no one (except the Journal) can accuse them of throwing the first punch. And when it comes to bailouts, this is the one group that hasn’t gotten a thing.
So now, much larger moral frameworks are coming undone. Which is not to say that individual commitment to sticking it out could preserve anything. Not when the costs for this dedication remain so one-sided.
Had the Obama administration responded with the terrifying authority that the situation demands, perhaps they could have preserved a broader base of ethics that’s now in decline. Had the myth of ‘talent’ been punctured by a willingness to prosecute actual wrongdoing, things may be different.
But instead of hearing about how many spectacularly guilty people are being sent to prison, and how shareholders in toxic shitpits like the ratings agencies are being told to go hang, the news is covering stories about top bankers at GS deciding to take stock instead of cash due to ‘concern’ about ‘perceptions’ after having amassed the biggest bonus pool in Wall Street history.
Wait, what’s that? It may only have tied the pools from the bubble’s peak? Oh gosh, forgive me. In that case, we’re just maintaining continuity. I’d forgotten that this is a god-given right, and that bankers – under no circumstances – will ever be forced to suffer exposure to, you know, the actual economy.
Never mind that banking was once a utility business – the natural home for Ivy League C students (I hope I don’t offend anyone by saying Dartmouth, in particular, seems like the place for bankers to come from.)
As a sector, banking’s fortunes rose and fell with the those of the broader economy, and you know what? That’s the way it ought to be. But then the 80′s happened. That’s when the brains moved in. And it’s because of this ‘talent’ that we’ve seen such a great decoupling.
Obama’s job was not to save the banking system. I was to save the economy. So yes, you do what you must in a moment of crisis to prevent total collapse. But once the situation has been stabilized, you set out to make that part of the economy as inhospitable to “talent” as you possibly can. After all, we have an economy to rebuild. Parking all those fine minds in the parasite lounge is no way to do that. You need to kick them out of the Wall Street opium den, and tell them to get real jobs. Create some too, while they’re at it. And forget about banking. From here on, it’s going to be about as glamorous as the electric company.
But that’s not what happened. Not even close. And once private and public institutions fail to this degree, people are right to (finally) recalibrate their own moral compasses – especially when their own unwavering commitments had become the basis for rank exploitation.
So now there’s that to contend with as well. Not only are people having to rebuild their balance sheets, they’re having to reconstruct a viable code of ethics to go with it.
Again, reconstruction is going to take a long time, and the outcome is likley to be more pronounced than the difference between a Prius and a Model-T.
But at least it’s begun.
Dec. 11 (Bloomberg) — Confidence among U.S. consumers increased in December for the first time in three months as the pace of job cuts slowed, easing concern spending will falter.
The Reuters/University of Michigan preliminary index of consumer sentiment rose to 73.4, higher than forecast, from 67.4 in November, according to data released today. The December figure exceeds the average of 65 for the first nine months of the year.
Improved sentiment may help fuel spending and sustain the recovery entering 2010. Retail sales, which increased more than forecast last month, may still prove uneven in coming months until companies begin hiring again, limiting how fast the economy will be able to expand.
“Consumers are clearly showing some willingness to spend,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto. The rise in confidence is “consistent with the modest improvement we’ve seen in the pace of layoffs and the payrolls data.”
Retail sales increased 1.3 percent in November after a 1.1 percent gain in the prior month, the Commerce Department reported earlier today. Sales excluding autos climbed 1.2 percent, the biggest rise since January.
The consumer sentiment index was forecast to rise to 68.8, according to the median of 71 economists surveyed by Bloomberg. Estimates ranged from 66 to 74. The final December figure is scheduled to be released on Dec. 23. During the expansion that began in late 2001 and ended in December 2007, the index averaged 89.2.
Dec. 11 (Bloomberg) — Confidence among U.S. consumers increased in December for the first time in three months as the pace of job cuts slowed, easing concern spending will falter.
The Reuters/University of Michigan preliminary index of consumer sentiment rose to 73.4, higher than forecast, from 67.4 in November, according to data released today. The December figure exceeds the average of 65 for the first nine months of the year.
Improved sentiment may help fuel spending and sustain the recovery entering 2010. Retail sales, which increased more than forecast last month, may still prove uneven in coming months until companies begin hiring again, limiting how fast the economy will be able to expand.
“Consumers are clearly showing some willingness to spend,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto. The rise in confidence is “consistent with the modest improvement we’ve seen in the pace of layoffs and the payrolls data.”
Retail sales increased 1.3 percent in November after a 1.1 percent gain in the prior month, the Commerce Department reported earlier today. Sales excluding autos climbed 1.2 percent, the biggest rise since January.
The consumer sentiment index was forecast to rise to 68.8, according to the median of 71 economists surveyed by Bloomberg. Estimates ranged from 66 to 74. The final December figure is scheduled to be released on Dec. 23. During the expansion that began in late 2001 and ended in December 2007, the index averaged 89.2.
Yah, doug, it is now established by opinion poll, the New Substitute For Actual Real TruthAndFact, that everything is once again coming up roses.
No, no, no, Alex, you just miss the entire point: It is the Duty of the Average Schmuck to create and re-create and re-create the Real Wealth that is needed to provide stuff that can be leveraged into Funny Munny by the people who are the WSJ’s market, so those folks can go live in their Cloud-Cuckoo Castles which they ascend to by Megayacht and private jet, assisted by a bunch of would-be or failed Robber Barons who feed off the blood sucked from the smaller arteries of the Body Politic that the Big Cheeses drain the large ones of.
I wonder: are our Top Predators “cutting back” and “scrimping” and “going green?’ Or just us folks down here on the jungle floor? Locavores? Among the Haves? Not.
Yah, doug, it is now established by opinion poll, the New Substitute For Actual Real TruthAndFact, that everything is once again coming up roses.
No, no, no, Alex, you just miss the entire point: It is the Duty of the Average Schmuck to create and re-create and re-create the Real Wealth that is needed to provide stuff that can be leveraged into Funny Munny by the people who are the WSJ’s market, so those folks can go live in their Cloud-Cuckoo Castles which they ascend to by Megayacht and private jet, assisted by a bunch of would-be or failed Robber Barons who feed off the blood sucked from the smaller arteries of the Body Politic that the Big Cheeses drain the large ones of.
I wonder: are our Top Predators “cutting back” and “scrimping” and “going green?’ Or just us folks down here on the jungle floor? Locavores? Among the Haves? Not.
you miss the market at your own risk—cash pays nothing–the real economy is comming back–not to 2007 but up 3-5% in real terms –the sky stopped falling and people are spending again–get out of your cave
you miss the market at your own risk—cash pays nothing–the real economy is comming back–not to 2007 but up 3-5% in real terms –the sky stopped falling and people are spending again–get out of your cave
Doug-You’re not getting why I think this is important. It is important that we begin to generate consumer savings, just like it would be good for our export economy begin to grow to the level of GDP that exists in Germany. Then we wouldn’t owe the Chinese so much money. We might put some of those savings into rebuilding our broken infrastructure, so people’s water isn’t poison.
Doug-You’re not getting why I think this is important. It is important that we begin to generate consumer savings, just like it would be good for our export economy begin to grow to the level of GDP that exists in Germany. Then we wouldn’t owe the Chinese so much money. We might put some of those savings into rebuilding our broken infrastructure, so people’s water isn’t poison.
I’m back to my 70s self-sustainablility mindframe. My gardenig skills have grown tremendously and I can feed three or four people year round on basics froma very small plot of raised bed organic gardening. This winter I’m adding large “cold frames’ That will give lots of greens through the winter and a big jump on summer. Not everyone can do this but if you have a few hundred square feet of land it would bggle your mind what can be done.
In the meantine I have also gone back to my no credit card days. If I really want something over a hundred or two dollars, I save my change evry day, throw in a one, five, ten or twenty on occasion, and rebate checks go it their. It’s funny how fast it adds up. It’s out of sight out of mind until the price hits “your” point and not the store point.
There are so many ways to disconnect from the economy that if enough of us do it then true change will follow.
I’m back to my 70s self-sustainablility mindframe. My gardenig skills have grown tremendously and I can feed three or four people year round on basics froma very small plot of raised bed organic gardening. This winter I’m adding large “cold frames’ That will give lots of greens through the winter and a big jump on summer. Not everyone can do this but if you have a few hundred square feet of land it would bggle your mind what can be done.
In the meantine I have also gone back to my no credit card days. If I really want something over a hundred or two dollars, I save my change evry day, throw in a one, five, ten or twenty on occasion, and rebate checks go it their. It’s funny how fast it adds up. It’s out of sight out of mind until the price hits “your” point and not the store point.
There are so many ways to disconnect from the economy that if enough of us do it then true change will follow.
Jon–we don’t have to have an export economy to thrive–but we can’t consume imports and run up large trade deficits–to do that we need to get off imported oil and start buying more American cars( which we will do as no one will be able to afford imports given the decline in the dollar)–we are a consuming society and as long as we don’t bankrupt ourselves that is a good thing– people still want to have fun and buying things is built into our psyches– your posts imply that the US economy is shot, and while it was clearly way overextended it is comming back faster then most people on this blog want to admit
Jon–we don’t have to have an export economy to thrive–but we can’t consume imports and run up large trade deficits–to do that we need to get off imported oil and start buying more American cars( which we will do as no one will be able to afford imports given the decline in the dollar)–we are a consuming society and as long as we don’t bankrupt ourselves that is a good thing– people still want to have fun and buying things is built into our psyches– your posts imply that the US economy is shot, and while it was clearly way overextended it is comming back faster then most people on this blog want to admit