I have posted before that Capitalism's Kryptonite is and will always be bailing out failure. TBTF or Too Big To Fail must be eliminated from our Financial System.
http://tradersutra.blogspot.com/2010/05/capitalisms-kryptonite.html
For Capitalism to function properly we need creative destruction. For us to get to this point we at least have to agree that there are many stresses to our economy. Housing and housing finance at the moment is a huge barrier to any sustainable recovery. Why in the world Fannie and Freddie are still around after all we have seen is simply mind boggling. Economics is the study of supply and demand. Financial markets were only created so that investors can have some idea of what price discovery is. As long as Fannie and Freddie are allowed to exist, the study of economics and finance is a waste of time.
http://tradersutra.blogspot.com/2010/08/price-discovery-in-housing-is-soarly.html
The simple reason these toxic twins are still around is to perpetuate Too Big To Fail. Who else can the TBTF institutions sell their toxic debt paper to? There is no other dumping ground for Wall Streets credit excess. We all know that the real economy won't get its groove back until housing stops going down and stabilizes. This only happens when the private sector starts to add real jobs. This is not new. You don't need to be an intellectual to figure this out. Even the ignorant can figure that job loss and the subsequent housing collapse got us in this mess and the only way out is? SURPRISE! Jobs and housing.
That is why the following article by Tobias Levkovich in Bloomberg is absolutely infuriating.
Housing Matters Little to U.S. Consumers' Wealth
http://www.bloomberg.com/news/2010-11-01/housing-matters-little-to-u-s-consumers-wealth-chart-of-the-day.html
HUH!
WHAT!
The Citigroup chief strategist incredibly believes that housing matters very little? Of course! EUREKA! We were imagining all of the hard luck and bad times. It was all a mirage. Total household destruction and all of the wealth loss was in our minds. It never happened.
Its kind of funny that his employer (My Former) Citigroup who were loaded to the gills in MBS paper had this feeling as well? Reading this article has me convinced that a majority of people employed by Wall Street and the financial economy think that no crisis ever took place.
How in the world can the chief strategist at Citi have this opinion? Does he have a clue? Housing and owners equivalent rent make up almost 1/2 of CPI! The average American spends most of his discretionary income on either rent or mortgage.
I am still stunned that this clown thinks real asset values don't matter. The whole idea that QE is going to restart animal spirits and from this a wealth effect will be born is totally non sensible when not looking at where the economy came from and where its going. The financial system has too much debt. Consumers are not in the mood to add debt when they are balance sheet constrained.
As I have noted before, The Fed has only one playbook. The playbook never changes. It has been handed down from Greenspan to Bernanke.
It basically says:
Monetary Policy Will and Always Will Be Accomodative To Wall Street Institutions.
What I think ultimately is happening is that many on Wall Street are trying to justify the financialization of the economy. This has been the trend since the 80's. They are trying to justify a Ponzy Financial Model. Its this same model that was created out of deregulation sponsored by and large by the GOP and powerful lobbyists. The DNC didn't want to be left out so they made it a mandate that everyone should have the opportunity to own a home. Financial alchemy and derivative finance became the over whelming petrol that fueled the US Housing markets since the 80's. The economy took its cue from that. Where steel and big industrials left off in the 70's, housing took the slack. Housing and Finance are one and the same. Thus the financialization of the economy and keeping the status quo are government policy. What the real alchemy was how a dream became a nightmare, not CDO's and or ARM mortgages. When the whole thing blew up the government just papered over the problem, bailed out all of the failures, and tried to re inflate old bubbles and create new mania's.
These morons in government still don't get it. You can't sustain an economy on fumes let alone no petrol. The idea that by keeping asset prices above where they would be normally will lead to a wealth effect is completely preposterous. The idea that if we can just keep prices up we will all be rich again is borderline asinine.
Its very frustrating and bottom line infuriating to keep hearing this line of thinking from policy makers. Here we are almost 2 years past one of the worst economic crisis in the history of the world and we still don't have one original idea to fix our rotten to the core system. These guys have not learned their lesson. Its an upside down world, a Bizarro world in fact. Where savers are punished and speculators are rewarded. Where failure is not punished but rewarded with bailouts and promises of future millions. Where fraud is not prosecuted but institutionally encouraged via control fraud.
One of the founding themes of economics is the idea of incentives. What is the incentive to continue to pay your bills or mortgage? What is the incentive to go to school? What is the incentive of savings and acting prudently? What are the incentives of working hard? What is the incentive not to speculate if you are working on Wall Street? Traders and speculators who happen to be employed by TBTF institutions have all of the incentives in the world to take out sized risks in this perverse financial system that has been created.
When they take failure which is a big part of life not withstanding the financial system out of the equation you are basically saying that its every person for himself. This is why our financial system is broken and broken beyond repair.
No comments:
Post a Comment