What a crappy day today. Temps on the low 50's, and high wind gusts that make it hard to hear anything while outside. Not expected to break 55 degrees for the next 5 days. Kevin, I was glad to hear that your spinach survived snow because it may hit a low 0f 38 here tonight and I am hoping the garden will not die off!
Robert Shiller's New York Times Piece
The weekend was dominated in the blogosphere by the NY Times piece done by Mr. Robert Shiller. Shiller, if you did not know, has been an early whistle blower on the housing bubble, and he has his own home price index (the Case-Shiller index) which is referenced quite a bit. I saw a post on Shiller's article on every single major blog. You can read the piece here: http://www.nytimes.com/2008/05/18/business/18view.html?scp=1&sq=shiller&st=nyt
I am not sure what all the rage was about this story. Mr. Shiller argues, much like Nouriel Roubini, that the housing bust must be actively managed to prevent a widespread panic. Whatever. I mean either you feel that a bailout is wrong no matter what or you think a bailout is ok if it averts some kind of disaster. You know where I stand, disaster please come faster!
The most important thought I took away from the article feeds right into the previous question about bailouts in general. Mr. Shiller makes an argument that widespread foreclosures would be a "Psychological Scar" for many. He is most likely correct. The key point is that in a debt based economy that is built on ever expanding credit, psychology IS king. Any serious financial reader know that the banks are a joke and in fact insolvent by any realistic metric. But the belief that they are ok still holds, and thus they hold. Home prices are coming down, but belief is still high that homes do not "go to zero" like tech stocks once did. Maybe, maybe not. Zero is not possible, but there is nothing easy about a 80-90% markdown. Almost zero is pretty bad. Again psychology is king.
This brings us back to the bailout question. With a system as broken and stupid as ours, a collapse is the only way to start new. It will suck. It will be terrible. It will not be Disney Land. The alternative is to continue to prop up psychology until a collapse happens at a time NOT OF OUR CHOOSING. Decide how you want to play it. If all those so called "I do everything for my kid" type parents really meant anything that they said, they would not be guaranteeing little junior a nightmare financial collapse is the near future but would instead take steps to combat the problem now. As evidenced by reality, you know the deal.
Cheering the Housing Bailout Bill: Wall Street says Thanks Taxpayers!
Late word that our magnificent US Senate has forged a deal to pass some kind of Housing Bailout bill. The bill will most likely look exactly like Senator Todd's silly $300 Billion package to hand the taxpayer a sure loss. No details as yet, but I can all but promise that Mr. President will not veto this baby. No way.
Already if you look at some of the message boards for companies like CFC, BAC, MER, and others there is a giddy glee of excitement. Free money tends to do that. When I discussed moral hazard in depth a while back this was the kind of thing I was most pissed off at. First the f#ckos on wall street package and sell off all these terrible mortgages. Then they all blow up. Massive losses result. The FED and the government spare no expense to make sure the banks that did this experience not even a 1 day lack of access to cash. Now the risk will be passed onto taxpayers and wall street will now play the stocks to their utmost benefit. What a way to game the system.
Any talking head that says this bill is a positive is instantly a loser. If you are so desperate that the FED has to loan out it's entire balance sheet, and the US government has to take on the risk of over 300 Billion dollars in loans, the market is not "strong" The market is on life support. Delay, deny, and hope. How much time will this bill buy? We will see.
Still makes me sick.
Have a good night and don't puke.