[QUOTE=ewmayer;237250]While not wishing to make in any way light of Ireland`s plight, "suspension from the bond markets for three or four years" - the nation-state analog of having one`s credit card cut up - seems a not-to-be-ruled-out option for weaning oneself off one`s debt addiction and making a fresh start. Hell, the Russains defaulted in 1998, [/QUOTE]

Yep. And LTCM went belly up as a consequence and they had to be
bailed out......

[QUOTE=R.D. Silverman;237258]Yep. And LTCM went belly up as a consequence and they had to be
bailed out......[/QUOTE]

Did you mean "had to be" or simply "were"?

Many are of the opinion that LTCM was the first big step on the road to the serial government bailouts of overleveraged big financial players and to-big-to-fail-ness that is the sorry norm nowadays. Had LTCM been allowed to fail and the investors in it and lenders to it forced to take their losses, with the government doing only what was needed to make the unwind as orderly as possible (i.e. to limit contagion and stem systemic panic), maybe some actual useful lessons would have been learned. Instead, outrageous leverage and running of giant financial firms with otherwise perfectly good low-risk business models as huge speculative hedge funds became the norm, rather than the spectacularly-failed exception LTCM should have become.

[QUOTE=ewmayer;237261]Did you mean "had to be" or simply "were"?

Many are of the opinion that LTCM was the first big step on the road to the serial government bailouts of overleveraged big financial players and to-big-to-fail-ness that is the sorry norm nowadays. Had LTCM been allowed to fail and the investors in it and lenders to it forced to take their losses, with the government doing only what was needed to make the unwind as orderly as possible (i.e. to limit contagion and stem systemic panic), maybe some actual useful lessons would have been learned. Instead, outrageous leverage and running of giant financial firms with otherwise perfectly good low-risk business models as huge speculative hedge funds became the norm, rather than the spectacularly-failed exception LTCM should have become.[/QUOTE]

Were.

LTCM shows how pathetic economists really are. Multiple Nobel prize
winners couldn't get it right. It also shows that giving a Nobel prize
in economics is also pathetic.

[QUOTE=R.D. Silverman;237299]LTCM shows how pathetic economists really are. Multiple Nobel prize
winners couldn't get it right. It also shows that giving a Nobel prize
in economics is also pathetic.[/QUOTE]

About once a week, I engage in what is a sort of economic self-flagellation ritual for me by forcing myself to have a look at the recent blog entries of hyper-Keynesian (and recent economics laureate) Paul Krugman. Occasionally amongst the "stimulus needs to be much bigger" and "we can borrow and pump-prime our way out of this if we just buy more printing presses" there just happens to be a useful nugget (of the non-turd variety), even if it`s one of the contrarian variety. Today`s intellectual nugget of anti-wisdom:

[url=http://krugman.blogs.nytimes.com/2010/11/15/the-problem/]The Problem[/url]
[quote]The situation: over the past decade, households ran up what is almost universally regarded as an excessive amount of debt — shown here for the United States, but also in the UK, Spain, and elsewhere. They are now being forced to pay down that debt by cutting spending.

The question is, what will replace their spending?[/quote]
[i]My Comment:[/i] If the spending was - as your "ran up excessive debt" comment correctly notes - unsustainable, why on Earth is it necessary or desirable to replace it? ("Replace" being a euphemism for "substitute and/or stimulate by other means"). What part of "living within one`s means" do you fail to grasp? If the problem is excessive spending, the only possible solutions are to (a) raise income to match the spending level, and (b) spend less. The Keynesians want us to believe in their per "virtuous cycle" hypothesis, whereby stimulating spending causes businesses to expand and hire, thus creating jobs and raising the overall economic wage base, thus supporting more spending, etc. The past 3-4 decades of steady offshoring of good-paying jobs and their replacement by lower-wage/unproductive or none-at-all jobs show the fallacy of this argument. Merely getting folks to spend more does not improve the overall wage base, in an environment of global wage arbitrage and with a population which has grown increasingly idle, less-educated (especially in areas which support real wealth-producjng economic activities, e.g. engineering and science) and - partly as a result of Keynesian free-lunch preachings - believes that by speculating in the "right" asset bubble du jour something can be had for nothing.
[quote] We’re told that we can’t have fiscal expansion, because that’s Big Government. And now we’re being told that we can’t have monetary expansion, which might induce businesses and low-debt consumers to spend more, because that’s debasing the dollar. Oh, and while we’re on that, we can’t allow the dollar to fall, which might help exports.[/quote]
[i]My Comment:[/i] We can`t have fiscal expansion because the first multitrillion-dollar rounds of it did fuck-all for the real economy, and more of it is going to blow up in our faces at some point in the not-distant future, as the markets` reactions to QE2 reveal. (Bond yields have [url=http://online.wsj.com/article/SB10001424052748703326204575616321781875884.html]actually risen[/url] in the past month, and commodity prices are rising to levels which are crushing profit margins because in the current non-recovered economy lack of demand prevents producers from passing the inflation the Fed is deliberately trying to stoke on to consumers). Also, those low-debt consumers of which you speak are in low debt precisely because they are the rare types of folks who resisted the urge to live beyond their means while you lot were doing your darndest to get everyone to lever up. Your money-printing idiocy isn`t going to get those folks to spend more, and everyone else is in hock up to their eyeballs, since the paying-down-of-debt you mention as necessary in your opening paragraph has barely begun in earnest - partly as result of the government trying with all its might to keep to the debt-bubble party going by way of various misguided "stimulus" measures.[quote]So, what? Yes, corporations are sitting on lots of cash — but why should they expand capacity when weak consumer demand means they aren’t using the capacity they have? [/quote]
[i]My Comment:[/i] Uh, , corporations may be sitting on record piles of cash, but you forgot to mention that they are also sitting on record piles of debt. (A lot of business used the record-low corporate bond rates - even lowest-rated junk is enjoying low rates as investors desperate for above-zero yield buy anything promising above 5%). But of course you Keynesians and debt merchants of the world like to treat debt as a form of wealth, don`t you? Hence the nifty replacement of "debt" by the much-nicer-sounding word "credit".

----------

Bob, if it`s any consolation, the economics "Nobel" is not a real Nobel ... it is an entirely separate prize sponsored by the Royal Bank of Sweden "In memory of Alfred Nobel". Basically they arrogated the name "Nobel" to lend their Ponzi-conomics award some instant credibility.

[QUOTE=ewmayer;237349]
Bob, if it`s any consolation, the economics "Nobel" is not a real Nobel ... it is an entirely separate prize sponsored by the Royal Bank of Sweden "In memory of Alfred Nobel". Basically they arrogated the name "Nobel" to lend their Ponzi-conomics award some instant credibility.[/QUOTE]

Yes. I knew that. But it is still a sham. Like the so-called "peace prize".

[QUOTE=R.D. Silverman;237356]Yes. I knew that. But it is still a sham. Like the so-called "peace prize".[/QUOTE]On the topic of Nobels, but not really on economics there are a number of historical oddities in the awarding of the prizes. The peace prize is perhaps the strangest --- Tom Lehrer claims he gave up satire when Kissinger won his --- but literature runs it a close second.

Even the hard sciences such as physics have their quirks. One was given for demonstrating that the electron behaves like a particle. Another was given to the former's son for demonstrating that the electron behaves like a wave.

Although the peace prize may be a sham on all to many occasions, it is sometimes rightly awarded IMAO. The Red Cross has been a worthy recipient, again IMAO, as has several others.


Paul

[QUOTE=xilman;237359]Even the hard sciences such as physics have their quirks. One was given for demonstrating that the electron behaves like a particle. Another was given to the former's son for demonstrating that the electron behaves like a wave.[/quote]
That quirk nicely mirrors both the particle/wave duality of QM and the generational shift amongst physicists which was needed to fully embrace its implications.

[quote]Although the peace prize may be a sham on all to many occasions, it is sometimes rightly awarded IMAO. The Red Cross has been a worthy recipient, again IMAO, as has several others.[/quote]This year's was OK by me - make a political statement but also make sure to give the prize to someone who has genuinely accomplished something (and at great personal risk) in the interest of world peace and/or human rights. Last year's ... not so much. (I write this as the 2009 awardee continues to busily escalate the war in Afghanistan and defends/continues nearly all of the Bush/Cheney-era human rights abuses).

[url=http://money.cnn.com/2010/11/17/news/economy/housing_starts/index.htm]Housing starts hit lowest level in 18 months[/url]: [i]New home construction fell to an 18-month low in October, the government said Wednesday.[/i]
[QUOTE]"Right now there is little demand for any kind of new construction," Bullard said. "And you have to factor in this time of year as well. This is not prime time for the housing market."

October's rate of 519,000 is the third lowest recorded since Jan. 1959.

"We are right back in the bottom of the trough in terms of housebuilding," said Robert Dye, senior economist for The PNC Financial Services Group.

Much of the weakness stems from lower numbers in the multi-family home construction, he added.

Permits for future construction rose to a seasonally adjusted annual rate of 550,000 last month, 0.5% above the revised rate of 547,000 in September, but fell short of expectations.

While the rate did increase, economists were expecting 570,000 permits in October.[/QUOTE]

Unfortunately, the rate of new housing starts is extremely low and seems to be set to stay that way. Anyone want to make three guesses why? It is almost laughable to see how MSM continues to blather "good news!!! The rate of decline is less than it could have been!) The reality is that people who build houses are out of jobs and desperately searching for something that will bring in a paycheck. A cousin of mine has been searching for 2 years now with only erratic work along the way. He has built houses for the last 20 years.... until now.

DarJones

[QUOTE=Fusion_power;237473]Unfortunately, the rate of new housing starts is extremely low and seems to be set to stay that way. Anyone want to make three guesses why? It is almost laughable to see how MSM continues to blather "good news!!! The rate of decline is less than it could have been![/QUOTE]

The positive-sounding ending they added to the above article is indeed laughable:
[quote]Permits for future construction rose to a seasonally adjusted annual rate of 550,000 last month, [b]0.5% above the revised rate of 547,000 in September[/b], but fell short of expectations.

While the rate did increase, economists were expecting 570,000 permits in October.

If one positive can be taken from the report, it is the slight increase in permits, Bullard said. To top of page[/QUOTE]
So a whopping one-half-of-one-percent (yowza and shazam!)...I'm sure the error bars on those numbers are an order of magnitude greater than that "positive trend" the idiot analyst points to.

Let's also look at the unrevised-versus-unrevised comparison for housing starts .. the CNN piece curiously omits to mention the magnitude of the September-numbers revision (I'm sure it was mere oversight ... not enough bytes to hold the extra characters, or something):

[url=http://www.dailyfinance.com/story/real-estate/housing-starts-october-fell-multifamily-homes-real-estate/19721834/?icid=sphere_copyright]Housing Starts Plunged 11.7% in October[/url]
[quote][b]September's total was revised downward to a 588,000-unit annual rate from the initially-estimated 610,000-unit rate[/b], according to the latest report from the Census Bureau and the Department of Housing and Urban Development.

The September revision underscores why economists caution investors not to put too much faith in the initially-released housing starts data: That data contains a significant margin of error and revisions can be large. [u]Analysts also underscore that it can take three to five months for a housing trend to form, and retrenchments are common: One occurred as a result of the revised September data, which turned a three-month uptrend into a two-month dip[/u].[/quote]
So comparing the 519k initial October number versus the 610K initial September number gives an even greater 14.9% month-over-month decline. Notice the extremely bullish headlines that got put on the now-shown-to-be-a-laugh 610K starts number for that month:

[url=http://www.marketwatch.com/story/housing-starts-rise-03-to-610000-in-september-2010-10-19]Housing starts rise for 3rd straight month, up 0.3%[/url]: [i]September’s 610,000 pace defies expectations; building permits drop[/i]

Spotted on the web: Yesterday, ZeroHedge reported that disagreements in the post-election, pre-swearing-in-of-new-members "lame duck" congress may allow the Bush-era tax cuts (which amount to an estimated $370 bln/year less revenue to the federal government) to expire completely - the big debate having been about whether to extend them for all but the wealthy (gross incomes >+ $200k/year) or to include the top earners as well - a reader opined thusly, in an apparent homage to the classic Frank Zappa song [URL="http://www.lyricstime.com/frank-zappa-fembot-in-a-wet-t-shirt-lyrics.html"]"Fembot in a Wet T-Shirt"[/URL] (one of the tracks from [I]Joe`s Garage[/I]):
[I]
"Because tax cuts for the mega rich are so stimulating."
[/I]
------------------------

Noted perma-curmudgeon Ambrose Evans-Pritchard of [I]The Daily Telegraph[/I] comments on the EMU`s downward spiral:

[URL="http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008667/the-horrible-truth-starts-to-dawn-on-europes-leaders/"]The horrible truth starts to dawn on Europe's leaders[/URL]: [I]The entire European Project is now at risk of disintegration, with strategic and economic consequences that are very hard to predict.[/I]
[quote]My own view is that the EU became illegitimate when it refused to accept the rejection of the European Constitution by French and Dutch voters in 2005. There can be no justification for reviving the text as the Lisbon Treaty and ramming it through by parliamentary procedure without referenda, in what amounted to an authoritarian Putsch. (Yes, the national parliaments were themselves elected – so don’t write indignant comments pointing this out – but what was their motive for denying their own peoples a vote in this specific instance? Elected leaders can violate democracy as well. There was a corporal from Austria … but let’s not get into that).

Ireland was the one country forced to hold a vote by its constitutional court. When this lonely electorate also voted no, the EU again disregarded the result and intimidated Ireland into voting a second time to get it “right”.

This is the behaviour of a proto-Fascist organization, so if Ireland now – by historic irony, and in condign retribution – sets off the chain-reaction that destroys the eurozone and the European Union, it will be hard to resist the temptation of opening a bottle of Connemara whisky and enjoying the moment. But resist one must. The cataclysm will not be pretty.[/quote]

The GM IPO and Contrast With Bank Bailouts
 

So the big "new GM" IPO was today ... stock closed down about a buck from its $35 offering price, but - in no small part to a little [url=http://www.zerohedge.com/article/getco-chruns-nearly-entire-gm-float-stock-closes-lows-day-and-1-below-break-price]HFT magic[/url] by Getco, the firm the USgov hired to "provide supporting liquidity" to the IPO - the offering can be considered a success, at least for the offerers, including the U.S. Treasury (and by extension the taxpayer), the major stakeholder. Taking a larger retrospective view, Barry R. contrasts the government treatment of bankrupt GM with the treatment of the bankrupt TBTF banks:

[url=http://www.ritholtz.com/blog/2010/11/banks-prepackaged-bankruptcy/]Too Bad Banks Missed Out On the GM Treatment[/url]
[quote]Contrary to popular belief, it wasn’t the credit crisis and recession that killed GM — the crisis merely revealed the structural deficiencies that were there all along. The company had diversified into auto finance, then home finance, all the while designing boring, poorly manufactured machines that got poor gas mileage and were vastly inferior to their European and Japanese counterparts. Insolvency was inevitable.

The weakened mid-western firm lacked the lobbying muscle to force an ill advised bailout. Rather than give GM the Hank Paulson bank treatment — throw trillions at them and hope for the best — Uncle Sam actually took an intelligent approach to the issue.

But even a weakened giant, a shadow of its former self, GM was still a substantial employer. That had political ramifications in an election year. Instead of letting them do the Lehman Brothers face plant into the pavement, the choice was made for a prepackaged bankruptcy.
[b]
This was the single best decision of the bailout era.
[/b]
It seemed to be the only decision that was not made in a panic. It adhered to the rules of capitalism — when your company is insolvent, it goes into reorganization or dissolution. The brutal, Darwinian rules of the market and of bankruptcy applied — not the influence of lobbyists, or special favors from Senators. The Treasury Secretary’s former gig was not running an auto company, he ran a Wall Street bank — so there could be no special favors expected to come from that quarter either.

Instead, Uncle Sam’s involvement was to provide Debtor-in-Possession financing. The bankruptcy plan was obvious: Wipe out shareholders, give bond holders a haircut, fire management, pare the company down to a sustainable size without sentiment.

This was what was done. A turnaround plan was created and executed. If the company met its milestones, the firm would be taken public, which would allow the government to significantly reduce its stake and exposure to GM. The Fed also helped, keeping financing rates at ultra low levels.

The long term stock sale plan would lead to the taxpayers being made nearly whole. All told, it was a wild success. Malcolm Gladwell argued that Rick Waggoner should get more credit and Steve Rattner less, for GM’s effective turnaround; many of the new models that are now doing so well were first created and planned for under Waggoner’s tenure 5 years ago.

So what is arguably the most successful bailout of the 2007-2010 era was in fact a non-bailout: It was a bankruptcy reorganization that eliminated the most toxic aspects of a century old rust bucket of a company. The new firm has clean books, is well capitalized, is without crushing debt, has a less onerous labor contract, pension and health care obligations. Its hard not to see how this was anything but a ginormous winner for all involved.

Which brings me to the Banks...[/quote]
[i]My Comment:[/i] While I have my issues with the GM bailout - and it will be interesting to see if the same taxpayers who "win as a result of a successful IPO" end up losing if all those shares snapped up by mutual and pension funds drop significantly in price over the coming months and years - I agree that the prepackaged bankruptcy model should definitely have been considered for the banks. (And still should, given that many of the biggest ones are still wildly insolvent at any quasi-realistic valuations of the trillions in toxic loans they are carrying around and valuing at face thanks to government-sponsored of accounting fraud, i.e. repel of the FASB mark-to-market accounting standards).