I haven't had anything to say. I've been sick, sleeping, reading, watching movies, not drawing.

I've been sick for the last several weeks. Went to the doctor (for the third time in 10 years) and found out I have bronchitis. Bronchitis isn't a big deal - just a virus in my lungs. As a present, I now have an inhaler, so I feel like a dorky 10 year old.

---

But ignore that.

Ignore the election, Palin MILF jokes, the death of David Foster Wallace, whatever else you fucking hear or read.


If it falls one way, it falls into a pit of Alien acid. If it falls the other way, it falls on a hard stone floor, which is better than a pit of Alien acid.

Everything almost fell into a pit of acid earlier this year. But the press, for the most part, didn't cover it because the story took longer then 30 seconds to describe. Even though the fate of the whole fucking country was at stake, and because of that, the state of good chunk of the world.


Basically, everyone was deluding themselves about the housing market. They thought it could never pop because houses are like here and like you live in them and stuff, so how can they become worth less, you know? It was that stupid. Anyway, now that the housing bubble has popped, there's A LOT of debt that can not be paid. All of that debt was incredibly high risk, but was chopped up and included in packages with safer debt, so everyone convinced themselves that there was NO RISK (sort of).


So that's the set up.


Until now.


But now everything is falling apart.

You and your friends are the investment banks. Your sister and her friends are the commercial banks. Your dad is the taxpayers/government/Federal Reserve. The loan to your stoner cousin is subprime housing loans (and the soon to be bad subprime credit loans).

And your situation? It has the possibility of mirroring your sister's great failure. The time her game crashed and cost your family its house and all of its money. Which was the Great Depression.


If the game stops, no new money for anyone. No new money, no new business. And there's been plenty of people yelling that the whole game is too dangerous, but no one listened. No one thought dad should get involved because the game was pretty damn good, damnit, and fuck dad anyway, we can do it on our own.

But you can't. Hopefully your loss doesn't extend to everyone's extended family.

This isn't just Bush's fault, btw. This is the fault of 30 years of bad policy. For 30 years, people have been screaming that the market can take care of itself. And that's kind of true, it can. In the past, when the market was unregulated, the market would crash every 10 or 15 years and would wipe out EVERYONE. The whole economy would crash, everyone would lose their jobs, a few ultra-rich people would stay afloat, and there would be general misery, sickness and death for everyone else. Read any fucking novel written before 1920 to get a picture of what went down (or any history book). But we won't learn our fucking lesson. There are serious gaps to market economies. It's a 'duh' thought except to the most pig-headed Milton Friedman worshiper, but there's too much money going to power-people for anyone to fix these systemic problems (and that definitely includes Obama (and McCain - he's even worse)).

A Massive Financial Collapse might be the result.

Brilliant. Sad, but brilliant.

(Reply) (Thread)

I think it's more myopic than brilliant. There's no evil conspiracy here, just a bunch of people with their heads shoved too far up their own self-interested ass to look at the big picture.

I worked for one of the biggest investment banks as a risk analyzer, which doesn't mean much (it was a bullshit title more than anything else) but it made me VERY cynical.

Edited at 2008-09-15 06:44 am (UTC)

(Reply) (Parent) (Thread)

I think I understand, but help me out here: when you say the investment banks have the federal reserve by the balls, what's really going on? Are they playing chicken with each other? Because it seems like even the investment bankers would want to avert total disaster. It seems like everybody would want to, except maybe people who are pro-apocalypse.

(Reply) (Thread)

If America's economy self-detonates, do we take the whole world with us? Or do we go down (mostly) on our own?

(Reply) (Parent) (Thread) (Expand)

They want dad's money to bail them out, but without dad's rules.

They know if they go under the whole economy falls into the pit of acid. So they're trying to get the Fed to bail them out in a way where heads, they win, and tails, the tax payers lose and they win. They're asking the Fed to bail them out without any serious stockholder repercussions.

Bear Stearns, which has been around since before the turn of the century disappeared earlier this year. JPMorgan bought them, but with tax payers guarantee to back the bad loans. The government made JPMorgan a LOT of money, sorta kinda at our expense. So everyone wanted the same deal this time around.

This time both Lehman Brothers and Merrill Lynch are going to fail. Merrill Lynch is being bought by Bank of America (which now makes Bank of America a monstrous powerhouse) and the government were trying to force a shotgun wedding for Lehman. However, all the banks wanted the tax payers to take some of the suffering and Henry Paulson of the Treasury said no way. Him and esp. Ben Bernanke are kicking ass to take care of this mess. So far, their gambles have worked.

This week AIG (one of the biggest) is going to fail or be bought. And more is on the way. Other than that, I'm still trying to understand it all.

(Reply) (Parent) (Thread) (Expand)

Read Brad DeLong's blog. He's a powerhouse economist and one of the few who has gotten everything right (which includes Paul Krugman, much to my delight, and doesn't include Tyler Cowen, or any of the right-leaning economists).

http://www.j-bradford-delong.net/movable_type/

(Reply) (Parent) (Thread)

http://time-blog.com/curious_capitalist/2008/09/the_day_wall_street_stood_stil.html?xid=rss-curious

http://www.marginalrevolution.com/

http://krugman.blogs.nytimes.com/

http://economistsview.typepad.com/economistsview/

The next few days are going to be rough. We won't feel the effects for a few months (or possibly weeks). Which means the news won't cover it (except for a few decent news outfits).

Edited at 2008-09-15 08:24 am (UTC)

(Reply) (Parent) (Thread) (Expand)

do you see one presidential candidate making more of an impact economically?

(also crossing my fingers that eruv shows up)

(Reply) (Thread) (Expand)

Because everything Troy says about economics is 100% true facts!

There's someone my f-list who's been crooning about the coming crisis for even longer than Troy has (a long, long time), and he's a whacko libertarian.

I do think it's funny that Troy says that Bernanke is handling this well, since Bernanke is a pig-headed Milton Friedman worshiper who believes the Fed caused the Great Depression.

I would say more, but I am late for class.

(Reply) (Parent) (Thread) (Expand)

i've just changed my mind about unregulated markets

Jaysus

--mza.

(Reply) (Thread)

Look at Russia after the wall crashed. Or Poland. Or South America after the IMF enforced unregulated markets in the 80s. Or Chile's crash after installing a text book Milton Freidman deregulated market after assassinating Allende. Or S.E. Asia during their great crash. South Africa after apartheid ended. On and on.

Or just as well, look at the U.S. during 1830-1920. It was a hell hole for anyone who wasn't rich and it was totally unregulated except for some tariffs. The UK after industrialization is cooking, like Dicken's time period, is also a good example of the "miracles" of deregulation.

And for the people who hate markets, you really need to see how quality of life and length of life goes wildly up under societies that adopted industrialization and free markets.

I don't know if it's sustainable, but it's definitely done good, despite everything. And unregulated markets have done a lot of harm, just as totally regulated markets never really work (USSR pre-1989). I'm just arguing against the extreme economic libertarians whose ideas were in charge for all the examples above AND for this recent debacle.

(Reply) (Parent) (Thread) (Expand)

I was waiting for you to take on this subject since I have read some good economic posts by you in the past. This stuff bothers me almost everyday(along with a bunch of other U.S. related problems)but I don't easily understand how it all works..your analogy was helpful. The most frustrating thing about this is that my parents,and most of my friend's parents,can't fathom the outcome. They have had it easy for the most part and when I've tried to warn my dad about this he shrugs it off(the government will figure it out). I know I need to get serious about a backup plan at some point..or at least keep some extra beans in the cupboard to start;)but I can't fully fathom what COULD very well be a global depression of sorts. I know the upper echelons of government won't be taking care of us in any case.

(Reply) (Thread) (Expand)

No one can fathom the outcome.

Unfortunately, there's no real safe place to invest. Getting a nest egg that's spread about a bit is probably a good idea. I haven't done it at all, which is stupid, but I want to make comics, not to be safe. Stupid, but whatever.

(Reply) (Parent) (Thread)

The theory that the market will regulate itself only works if they really don't think "Dad" is going to bail them out if shit hits the fan.

Now that they've bailed one out, everyone thinks they'll do it again. The article in the NYT today put it like this:

"Mr. Geithner [President of the New York Federal Reserve Bank] made an impassioned appeal to the group: We need an industry solution. We need an industry solution, no matter what, he said. His message was clear; it is not about any individual bank, it is about the industry. If you don’t create an industry solution, you will be next.

Most of the bankers quietly listened. But some questioned the need for them to play a role in a bailout. Lehman Brothers had overreached and brought its troubles upon itself, they argued. Why should they put up their own money in a rescue? "

http://www.nytimes.com/2008/09/16/business/16reconstruct.html?hp

So, they don't think *they* should put the money up. But they want the government to do that instead (putting our money up, as it were). The reason BofA didn't do the deal with Lehman was because they wanted the Government to give them the same kind of sweet deal that JP Morgan got. Basically wanting the government to subsidize their business deal (with a great deal of assets in addition to the bad debt). Moral hazard is no longer just an idea, it's a reality. The government had to stop with the handouts now, or nothing would get done by the industry.

As much as all of this sucks, there's no easy solution. There's a ton of bad debt out there, and as more and more people clue in to the fact that it's not getting any better, they'll start pulling their money out. The general public is dumber than dirt, but it's already starting to bubble up. The more there is coverage of this, the more average people with their money in a 401k are going to get spooked and as bad as all this is, if the sheep get in on it, it's going to look like 1929 all over again. It sucks - people are going to vote on who they think they'd like to go to a church retreat with, and you could end up with a couple of clueless idiots in the White House when this all goes down. If you finally make people understand the gravity of the situation, everyone will panic and take their money out of their 401ks and banks and hide it under their beds. When that California S&L was taken over, most people's deposits were fully insured and they knew that but they *still* were standing in line waiting to get their damned money out.

Maybe we need a big crash, because you know the banks aren't going to agree to more regulations unless their heads are chopped off.

This situation and the election make me want to move to Canada or something. *sigh*

(Reply) (Thread) (Expand)

There is truth to the argument that we need a crash. The market needs (and IS) correcting. But without careful handling, it will crash instead of just slowing down for some extensive repairs.

The problem with a crash is that everyone gets hurt, but all the little people get squashed. The ultra rich get hit a little bit, but largely sail through unscathed even though they caused the problem. The upper middle class, middle class and poor are simply crushed. Everyone's going to get hurt a little if things just deflate for awhile. Everyone will hurt a lot if things crash. As long as we learn something from all of this, and prevent it from happening again, then we can avoid the same thing happening in the future, and a slow deflation will be worth it.

That said, the S&L crisis, the junk bond crisis, LTCM, Enron, Andersson, the mortgage/rent disparity, our bond situation, etc., have all been very loud warning signs that no one listened to (esp. the maestro of destruction, Greenspan).

The Great Crash did nothing to teach markets how to clean up their act until later. Over the course of decades the market learned that no regulation and monopolies were bad for the economy, but it took a long time and a lot of death and suffering to figure it out.

Part of the reason people are so damn stupid is because economics shit isn't explained to them by the press.

(Reply) (Parent) (Thread) (Expand)

i am having a really hard time wrapping my head around the metaphor b/c i just woke up, i will read again after i am more fully awake, and then move on to th other links.

right now i just get a sort of uncanny impression being dictated by the final sentence.

(Reply) (Thread)

That flying guillotine has been after us all year.

Basically, the deregulation of banks under Reagan, Bush, Clinton and Dubya, allowed the banks to make shady loans and business transactions. Now it's all falling apart, and everyone realizes that the system is broken. If things crash, we're all fucked. Things are going to grind down to a slow crawl until money-people figure out how to trust each other again.

(Reply) (Parent) (Thread)

but now that the bubble's popped, everything's gonna be better, right? right? :P

(Reply) (Thread)

Yes it is, my love. Everything is going to be just fine.

Now come sit down next to the fire.

Would you like a cup of hot cocoa?

(Reply) (Parent) (Thread)

"I mean, his wife goes out and owes money and they pee on my rug."

"That's right, Dude; they pee on your fucking rug."

(Reply) (Thread)

For the win.

(Reply) (Parent) (Thread)

Yeah but SECRET MUSLIM

(Reply) (Thread)

You might be interested to know that this is all over the Canadian news channels. Just heard that LB has filed for chapter 11 and supposedly the market is in meltdown.

But turns out the Canuck populace is just as stupid. I'm watching the "man on the street" interviews and everyone seems to think that this won't hurt us up here... one even said he had complete faith in the U.S. banking system. *imagines your blood pressure rising*

(Reply) (Thread)

It's all over the news here too. My real anger is toward televised news, since print does a better job of explaining the issues (but the structure of print often excludes deep explanations). And people would rather hear gossip about ingenue de jour.

(Reply) (Parent) (Thread)

hi, i'm naomi. this was a really great breakdown of the state of things. thanks!

(Reply) (Thread)

Thank you. Added you back.

Haven't been writing much lately; my blog lately is mainly comics and photos.

(Reply) (Parent) (Thread) (Expand)

Dear Troy,

Are all my stocks going to evaporate? Should I SELL SELL SELL?

Love,
Me

(Reply) (Thread) (Expand)

I am not Troy, but I would say: no. If you sell now, you're going to be getting terrible prices. Plus you'd be forgoing the the major benefit young people have, which is more years ahead of us, which means a chance to ride through the storm as well as sweet, sweet compound interest.

However, I am not Troy, so pretend my answer was BLARGH DE BLARGH BLARGH BOOBY BLARGH.

(Reply) (Parent) (Thread)

This is so well put. Seriously. This should be tacked up as fliers one every single doorstep.

-MQB

(Reply) (Thread)

Thanks!

(Reply) (Parent) (Thread)

like naomi, i found you via anita.

my question is, if you could freeze time and erase the current financial structures and rebuild them, what would you do?

you say that the destruction of the poor and middle class in a crash concerns you, and that people being left to rot while industry advances bothers you. i am in agreement, fully, but i lack the economic understanding to propose how to fix this. i have a hard on for the promises socialism gives, but not enough knowhow to seriously analyze it to see if i myself think it would work.

is there a fair economic system?

(Reply) (Thread)

That's a rough question. I think about it a lot, but I can't think of a realistic economic system outside capitalism. Theoretically, I don't like state ownership of production and distribution, and think it's a proven awful system for moving goods; which rules out communism and most severe socialisms. That said, I sorta like European socialism, which is really just an expanded Welfare State, but that really doesn't deal with the problems of Capitalism, it just white washes everything.

I like the idea of companies where workers can buy into ownership, like the law firm partner model, or the worker-owned factory, but I've heard many complaints about it as a model. Still, I'd like to see it expanded. It has worked in a few places at a few periods of history.

I'm not sure if I like the idea of anarchism, but I definitely consider it too optimistic/idealistic, and think it totally untenable. I like the goals of communism, but think it's an ideal that doesn't even work in the abstract. I tried reading about "participatory economics," or "parecon," but don't really get it, and need to read more.

I just don't know what I would do.

Some simple things: I would make corporations more accountable, and make it easier for them to lose their charter. I would revoke their status as "juridical persons" and would tweak their relationship to ownership. I would make them lose their charter if convicted of a felony that would put a regular "juridical person" in prison. I would engrave workers' rights, environmental concerns and other "externalities" into our system of markets, and install a better system of checks and balances that account for power. I'd immediately rescind the law that spending money is a form of free speech, and loosen the control of lobbyists. I'd demand as much transparency as possible at all level of economic systems (and in the political world as well).

I guess I'm skeptical of a free market but recognize its power for good (and bad). Same with private ownership and corporations. I'd rather have a lab somewhere where a million or so people could practice new economies and new ideals of working and trading. And after a few generations of working experiments pick one that is the best.

I dunno. Just too big an idea.

(Reply) (Parent) (Thread)

I am ignorant on the subject of economics. Your posts on the subject and the subsequent discussions in comments are always accessible, interesting, and informative. I appreciate that. So, thanks.

(Reply) (Thread)

Thank you.

(Reply) (Parent) (Thread)

"This is the fault of 30 years of bad policy."

Why 30 years? Is this a reference to the dollar being taken off the gold standard? What's the 30-year figure in reference to exactly?

I stumbled across a 9-year-old act that seems to be a significant player in what is happening with the market now:

"Phil Gramm introduced into the Senate the 1999 Gramm-Leach-Bliley Act, which Bill Clinton later signed into law. The act repealed the Glass-Steagall Act which had established a firewall between commercial and investment banking in the wake of the Great Depression. The repeal created a "shadow banking system that operates outside any government oversight." This deregulation is precisely what has led to practices like the over-escalation of subprime mortgage lending resulting in the current crisis."

So, am I right in presuming all that? Would you consider the Gramm-Leach-Bliley Act to be one of a few governmental decisions over the past 30 years that we should view as casually linked to what happening now?

(Reply) (Thread) (Expand)

That is one piece of legislation that DIRECTLY leads to our current crisis, but no, I was speaking more generally of Reagan's push to deregulate as much of the market as he could. His mandate was carried forward by Bush, Clinton and Dubya.

There's all kinds of crappy legislation that the three of them didn't bother to veto that helped the banks but didn't help anyone else. Gramm-Leach and the Bankruptcy Reform Act are just two of the most egregious. All believed (or voted for legislation that supported) an extreme laissez faire designed to deregulate any governmental oversight or hampering of big business, and that distinctly included Wall Street.

Edited at 2008-09-16 06:20 am (UTC)

(Reply) (Parent) (Thread)

Reading this analogy I've been wondering where "Daddy" gets his money to bail out you and your sister. Then I remembered -- he runs a massive shake-down racket, taking a piece of every bit of action that happens on his turf, on pain of bad things happening to anybody who doesn't pay up. Also, on the side he sells dope to your stoner cousins, but through intermediaries and it's not considered polite to talk about that out loud.

So I can understand the appeal of not being subject to his rules. They're really for his benefit more than yours. And of course, Daddy let you play unsupervised for a while because he knew that eventually you'd come running to him for help, and his price for helping is to grab 80 percent of everything you've got. Not a bad deal for Daddy.

(Reply) (Thread)

I'm no fan of daddy, but you must be one of those geniuses who think this recent mess is all because of daddy's regulation?

I'm guessing by your ridiculous rant that you're a libertarian, specifically the type who jerks off to Rand and Friedman. Libertarians have an amazing capacity for ideology-based self-deception.

At least the bankers and brokers who dealt with subprime only had an allegiance to short-sighted greed.

(Reply) (Parent) (Thread) (Expand)

Wow, this is really the rant about this I'd been looking for. :)
I'm glad someone said it.

(Reply) (Thread)