The Big Picture

WSJ: Fed's Stern Says U.S. Recession likely

Posted by Barry Ritholtz on Tuesday, May 13, 2008 | 07:30 PM

in Credit | Federal Reserve | Psychology/Sentiment

Q: Do you think we’re going to avoid a recession?

A: No.

But there are recessions and then there recessions. The previous two were short, and the most recent one was not only short but shallow. I think that’s what really matters to people. The average resident doesn’t distinguish between whether the economy is growing half a percent or one and a half percent. That’s not their interest. It’s more, how does this feel? Are conditions generally improving noticeably or aren’t they?

>

Wow, that's a pretty explicit admission from Gary Stern, president of the Federal Reserve Bank of Minneapolis. Stern is the co-author of “Too Big To Fail: The Hazards of Bank Bailouts.”

Stern suggested in an interview that the U."S. economy may face “subdued” performance for the next two quarters, with output that’s barely positive or barely negative."

You know, kinda like the last 2 quarters of 0.6% GDP.

I disagree with his assessment of the current environment being "similar to the early 1990s when “headwinds,” a phrase then Federal Reserve Chairman Alan Greenspan used to refer to the lenders’ reluctance to lend, weighed on the economy."

The rest of the interview can be found on the WSJ's Real Time Economic: Stern: Credit ‘Headwinds’ to Weigh on Economy Beyond 2008

Source:
Stern: Credit ‘Headwinds’ to Weigh on Economy Beyond 2008
Real Time Economics, May 13, 2008, 3:23 pm
http://blogs.wsj.com/economics/2008/05/13/stern-credit-headwinds-to-weigh-on-economy-beyond-2008/?mod=WSJBlog#comments

What Is Yahoo Actually Worth, Part II ?

Posted by Barry Ritholtz on Tuesday, May 13, 2008 | 03:30 PM

in M&A | Markets

A few weekends ago, I asked the following questions:

- What are Yahoo (YHOO) shares actually worth? Both now, and 3-5 years from now?
- When Yahoo's stock gets whacked due to Mr. Softee's walkaway, does this create an opportunity?Indeed, if Microsoft (MSFT) believed Yahoo was worth $33, wouldn't that imply the company has a value above the January 31 pre-bid price of $19 ?
- The key is whether there are any other bidders lurking put there.

Well, via CNBC, the latest rumor broke today about another bidder-- Carl Icahn -- as much as 50 million shares. Its helped rallied the markets nicely off the lows (other than that, there's not a whole lot else going on)

Paul is having none of it, and instead suggests a Yahoo-Build-A-Rumor sort of thing . . .

UPDATE: March 13, 2008 4:54pm

WSJ is now reporting this as true: Icahn Enters Microsoft-Yahoo Fray:

Billionaire investor Carl Icahn has amassed a stake in Yahoo Inc. and is leaning toward launching a proxy contest to unseat at least part of Yahoo's board, according to one person familiar with the situation.

Mr. Icahn bought roughly 50 million Yahoo shares since Microsoft Corp. on May 3 withdrew its unsolicited offer to buy Yahoo, the person said. Mr. Icahn is expected to decide Wednesday whether to launch a proxy contest -- a Yahoo deadline for board nominations looms Thursday -- and he currently has no assurances from Microsoft it would reconsider a Yahoo purchase. The person said that Mr. Icahn was unsure whether he would nominate a full or partial slate of candidates to try to replace Yahoo's 10-person board. A shareholder vote on any such nominees would take place at Yahoo's annual shareholder meeting on July 3.

Previously:
What Is Yahoo Actually Worth ? (May 4, 2008)
http://bigpicture.typepad.com/comments/2008/05/what-is-yahoo-a.html

Was a Private Equity Bid for Yahoo Thwarted by Microsoft ? (February 11, 2008)
http://bigpicture.typepad.com/comments/2008/02/private-equity.html

Markets: As Good With Elections As They Are With The Economy

Posted by Barry Ritholtz on Tuesday, May 13, 2008 | 02:30 PM

in Markets | Politics | Psychology/Sentiment

>

"What you're doing is collecting bits and pieces of information and aggregating it so we can watch it and understand what people know. People picked this up and called it the 'wisdom of crowds' and other things, but a lot of that is just hype."

-California Institute of Technology economist Charles Plott
>

Interesting piece in the WSJ on prediction markets and politics, Traders' Calls Just as Bad On Elections. (I may have mentioned something about this in the past).

"John McCain's presidential campaign is doomed -- at least, if you still believe what political futures markets indicate. At the Irish electronic exchange Intrade, on which people bet on election outcomes and other events, the futures market suggests Mr. McCain has a 38% chance of becoming the 44th president. In the Iowa Electronic Markets, set up at the University of Iowa, Mr. McCain's Republican Party gets a 41% chance of winning the popular vote for the White House.

Then again, six months ago, the Iowa markets gave Barack Obama less than a 30% chance of winning the Democratic nomination. Academic studies suggest these markets are more reliable than opinion polls, but that might be giving the markets too much credit.

Intrade futures had John Kerry beating President Bush well into the evening of Election Day 2004. They also said there was a good chance Mr. Obama would top Hillary Clinton in January's New Hampshire primary, which she won."

The article details many of my favorite quibbles: thinly traded, plagued by bad information, skewed participation, bubbles, head-fakes and manipulation.

What did it reflect when all those people bought all those Hillary Clinton and Rudy Giuliani presidential futures when each was a front runner? Somehow, the phrase "Wisdom of Crowds" just doesn't seem to capture the full essence of that . . .

Previously:
Iowa and Prediction Markets, January 24, 2004 http://bigpicture.typepad.com/comments/2004/01/iowa_and_predec.html

Why Prediction Markets Fail January 11, 2008 http://bigpicture.typepad.com/comments/2008/01/prediction-mark.html

Misunderstanding Prediction Market Failures February 14, 2007 http://bigpicture.typepad.com/comments/2007/02/misunderstandin.html

Source:
Traders' Calls Just as Bad On Elections
MARK GONGLOFF
WSJ, May 13, 2008; Page C1
http://online.wsj.com/article/SB121063385437486555.html

April Retail Sales

Posted by Barry Ritholtz on Tuesday, May 13, 2008 | 11:59 AM

in Commodities | Consumer Spending | Retail

Retail Sales were rather unimpressive: Gasoline, Groceries, Food & Beverage were up, while pretty much everything else was flat to down.

If you want to get rid of the Easter factor, compare March/April 2007 with March/April 2008.

Perhaps some chart porn might be instructive:

click for larger charts

courtesy of Jake

courtesy of Bespoke Group

courtesy of CEO Economic Update

Inflation Ex-Inflation Ex-Inflation

Posted by Barry Ritholtz on Tuesday, May 13, 2008 | 06:55 AM

in Data Analysis | Inflation | Psychology/Sentiment

I stumbled across a data point yesterday that was quite fascinating: The percentage of food and health care in the Consumer Price Index.

It turns out that Inflation may be even worse that I previously thought.

According to Mark Faber (via Bill Fleckenstein), food and health care are significantly under-weighted in the CPI. That's based on the actual consumption of food and health care by real (as opposed to theoretically modeled) people.

Faber notes that:

"In the U.S. counts food as only 8% of the CPI index. Whereas, it counts for about 10% in the United Kingdom, about 15% in the rest of Europe and more than 18% in Japan."

~~I have yet to validate it that percentage, but if it turns out to be true,~~ we have Inflation (as reported) on top of the misleading hedonic/substitution adjustments (ex-inflation) on a disproportionate spending pie (ex-inflation X 2). UPDATE: Food at home is 7.66% of the CPI according to the BLS (Thanks, Mike)

Hence, doubly understated Inflation. Unless you go Core, which is the original Inflation Ex-Inflation.

Now here's where things get really interesting. Fleck points out that if you consider the proportion of U.S. household spending on food by income quintile, all but the top 20% of earners spend at least 20% of their paychecks on food.

Hence, what the weighting versus the reality are very different. This means that for 80% of the country's populace, the CPI weightings are dramatically understates what the average American is experiencing in terms of their inflation versus the official CPI measure.

This goes a long way to explaining the difference between the official inflation data and the generally poor consumer sentiment data.

CPI data is Wednesday, with a consensus of 0.3%.

NYT Interactive Inflation Chart

Previously:
Is Inflation Really Understated? (No!) May 08, 2008 http://bigpicture.typepad.com/comments/2008/05/inflation-infla.html

Inflation Abounds April 29, 2008
http://bigpicture.typepad.com/comments/2008/04/inflation-aboun.html

Is the Fed Causing a Global Food Crisis? April 25, 2008
http://bigpicture.typepad.com/comments/2008/04/is-the-fed-caus.html

Source:
Why all roads lead to inflation
Bill Fleckenstein
Contrarian Chronicles
MSN Money, 5/12/2008 12:01 AM ET
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/WhyAllRoadsLeadToInflation.aspx

Whitney On Citi's Pandit

Posted by Barry Ritholtz on Tuesday, May 13, 2008 | 03:30 AM

in Credit | Video

I tried embedding a Windows Media version of several recent Bloomberg Videos yesterday, but somehow, we ended up with the autorun feature on, regardless of the setting.

This morning, I will embed it into a page after the jump to prevent that from autorun reoccurring:

Click for video

Citigroup Inc. Chief Executive Officer Vikram Pandit faces an "impossible feat'' in turning around the biggest U.S. bank as it faces ``seismic'' costs to restructure, Oppenheimer & Co. analyst Meredith Whitney said.

Citigroup will be forced to announce the sale of major businesses toward the end of this year or in early 2009, Whitney, who recommends investors sell the shares, said in a Bloomberg TV interview today. One of the units could be Banamex, the company's Mexican branch, she said.

Whitney, 38, correctly predicted on Oct. 31 that New York- based Citigroup would cut its dividend to shore up capital after mortgage-related writedowns. Pandit on May 9 outlined plans to sell $400 billion in assets at the bank, which has booked more than $40 billion of credit losses and writedowns since the subprime mortgage market collapsed last year.

Source
Citi's Pandit Faces `Impossible Feat,' Whitney Says
Margaret Popper and Josh Fineman
Bloomberg, May 12 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aTsLEkAPZJAE

Continue reading "Whitney On Citi's Pandit "

Ben Bernanke, Improvisor

Posted by Barry Ritholtz on Monday, May 12, 2008 | 08:03 PM

in Credit | Federal Reserve | Inflation | Markets

A must read piece is in the upcoming June 2008 Bloomberg Markets Magazine titled: The Improviser

"Ben Bernanke, the consensus-building academic who toiled in Alan Greenspan's shadow, is emerging as the most powerful--and inventive--Federal Reserve chairman in the 95-year history of the central bank. Paul Volcker says he's overreaching . . .

From Bernanke's standpoint, there are two major lessons to be learned from the Fed's reaction to the market crash of 1929 that are relevant today. The first is that the Fed should lower rates, not raise them, in the face of an economic contraction. The second is that the Fed must pay careful attention to the health of financial institutions, as lending plays a big role in economic growth.

In July 1928, when financial markets were still booming, the Fed raised its benchmark interest rates to 5 percent, the highest since 1921, effectively cutting the money supply, in order to reduce what it saw as excess speculation on Wall Street. It did so even though there were no signs of inflation, Bernanke said at the conference honoring Friedman. In October 1931, after the market crashed and GDP had begun to nosedive, the Fed raised rates again to prevent the dollar from falling in international markets. That made it harder for companies and individuals to borrow even as the economy was contracting 30 percent and deflation was setting in. A series of bank failures further reduced credit throughout the economy."

Go read the full piece now . . .

Source:
The Improviser
Steve Matthews
Bloomberg Markets Magazine June 2008
http://www.bloomberg.com/news/marketsmag/mm_0608_story2.html

Lowest NYSE Volume of the Year

Posted by Barry Ritholtz on Monday, May 12, 2008 | 05:01 PM

in Markets | Technical Analysis | Trading

Peter Boockvar notes:

Today's consolidated volume for NYSE names was a low for the year to date.

Helene Meisler notes:

It's a bear market -- and these low volume rallies are typical of short covering. (unless you believe all those dark pools are swallowing all the volume!).

As long as there are shorts in the market we will get rallies; Once the shorts cover we get a decline like last week.

Doug Kass goes even further:

I am starting to scale into shorts now.
My favorite? PowerShares QQQ (QQQQ).
My catalysts? The VIX and volume.

That's our surprising data point of the day.

NYPost: $15 Million Hamptons Foreclosure

Posted by Barry Ritholtz on Monday, May 12, 2008 | 01:42 PM

in Finance | Real Estate

We can always count on the New York Post for thoughtful, contemplative analysis: The latest such example is the increasing issue of foreclosures in the Hamptons:

"Homeowners in the some of the toniest ZIP codes in the Hamptons are facing a frightening reality - they can't afford to foot the bill for their high-priced homes, The Post has learned.

In the first three months of this year, banks have launched preliminary foreclosure actions - known as lis pendens proceedings - against a record 120 borrowers in East Hampton and Southampton towns.

Twenty percent of those borrowers live in homes that are worth more than $1 million, according to figures from the Suffolk County clerk. And the list gets longer every week."

Now before you get too concerned, understand that a total of 10 homes have actually gone into foreclosure. A lis pendens action is merely a claim or suit filed against real estate (usually regarding title or ownership). In a beach community like the Hamptons, some of these could easily be absentee owners' errors or oversights. I would have liked to see the lis pendens data for teach of the past 10 years.

What is somewhat unusual are some of the biggers busts, like this $15 million Westhampton chateau pictured above. Real estate brokers interviewed in the article seem to be split: Some note the "high-end sector remains strong," and that "doomsday predictions were premature." Others are are bracing for the impact of Wall Street layoffs:

"Corcoran broker Susan Breitenbach said young Wall Streeters who gobbled up trophy properties in recent years are starting to suffer. She recalled getting calls from Bear Stearns employees desperate to unload their East End homes after the company's recent implosion. "These are people who are used to success," Brady said. "There is a level of denial and embarrassment when I have to call [people] to ask about mortgage problems."

Another top-selling East End broker who spoke anonymously said the area was bracing for fallout from impending Wall Street layoffs. "That wave hasn't even hit yet," he said. "A lot of them who bought second homes are already trying to shed them. You'll always have the super-rich who can make moves out here no matter what," the broker said. "But I think there's a dose of reality on the way."

Well, we will find out soon enough . . .

Source:
TROUBLE IN LI PARADISE
FORECLOSURES LOOMING FOR THE HAMPTONS' POSHEST PADS
SELIM ALGAR
NYPost, May 12, 2008 --
http://www.nypost.com/seven/05122008/news/regionalnews/trouble_in_li_paradise_110497.htm

Baltic Dry Index Approaching Old Highs

Posted by Barry Ritholtz on Monday, May 12, 2008 | 11:30 AM

in Commodities | Technical Analysis

About a year ago, we looked at the Baltic Dy Index as it hit new highs.

At the time, we noted it reflected "global growth, especially Asia and to a lesser degree, Europe. We also discussed that growth in the BDI reflects a shortage of shipping vessels as much as it does demand for shipping.

The Baltic Dry Index recently tumbled 40% -- on recession fears? new shipping capacity concerns? -- but has since recovered much of that loss.

I view these charts as encouraging, with an asterisk. Why not fully encouraging? Because of the other legitimate ways you can interpret this price action:

- Ongoing lack of capacity -- with many more ships coming on line over the next 10 years, the tight supply constraints will not be alleviated until much later this decade;

- High prices of Commodities allows shippers some pricing room;

- Marginal Demand increases from China, India and Brazil;

Bottom line: Watch the recent highs for a confirming breakout -- a run through 10,630 or so could lead to a move towards 11,500.

Here is the latest few charts:

What Does Boating Tell Us About the Economy?

Posted by Barry Ritholtz on Monday, May 12, 2008 | 06:57 AM

in Commodities | Consumer Spending | Credit | Retail

Growing up on an island, I've always been intrigued by the boating world.

Many friends and neighbors have boats, and while I've spent time sailing and powerboating, I've never owned one. Mrs. Big Picture grew up with sailboats, as both her dad and two brothers liked to sail lightnings -- affordable, family fun. I, on the other hand, don't have that out of my system.

I don't know a single boat owner who has been able to justify the costs of ownership. And yet, there is a two year waiting list at any of the local marinas for slips (but moorings are available 100 yards from our home).

Why all of this boating chatter? I am tracking two interesting data points regarding recreational products: Sales and financing. We know that Boating sales began slip as far back as Summer 2006, when Oil prices were in the $50 - $70 range. Those with existing boats, however, continue to enjoy their usage. Even with Marine gasoline at $5, its only a marginal price increase relative to their total sunk costs.

Peter Greenberg -- the TODAY’s show Travel editor -- notes the schism between two groups of boating enthusiasts: those who already own, and those who want to:

"If you already own a boat or an RV, chances are good that you're planning to put your boat in the water and you've made plans for road trips in your RV.

That would seem counterintuitive, but the numbers speak otherwise. While retail sales for recreational boating topped $39 billion in 2006 — an increase of nearly six percent from 2005 — the last two years have not been as buoyant. In 2007, the industry saw a drop of 14 percent in unit sales, and nine percent in dollar sales. And this year will be worse. In fact, at the recent Miami boat show, many new boat dealers were downright depressed. "See that brand-new boat over there?" said the president of one upscale boat manufacturer. "I've sold it four times this week."

Translation: The prospective buyers couldn't close financing."

And indeed, that is what we see from several capital lending firms that used to finance boat purchases. The most recent firm to exit the business? None other than GE Capital:

"General Electric Co's (GE) decision this week to no longer lend consumers money to buy motorhomes and boats was more bad news for the recreational vehicle and boat industry.

While the move by GE Money is likely to prompt the many other lenders in this sector to tighten credit standards and push borrowing costs higher, analysts say it won't significantly worsen the industry's admittedly dismal fundamental outlook.

Even before GE, which operates one of the country's biggest and most sophisticated finance companies, announced its intention to exit the retail RV market, rising gasoline prices, falling home values and tightening consumer credit had taken their toll on motorhome and boat sales."

File this under obscure economic indicators: Boating is (obviously) a nonessential activity. This is only one tiny aspect of the enormous US economy. But how Americans spend our leisure dollars, speaks volumes about the availability of credit, as well as the overall economy.

Stay tuned . . .

Our Local Marina

Morgan Park, donated by J.P. Morgan

UPDATE: May 12, 2008 9:14am

On the train in this morning, I chat with Bob -- whose 42 footer is moored off of Centre Island. Bob notes that there are two boating worlds -- bigger than 100 feet, and everything else. The > 100 foot world is doing just fine, thank you. Even more amazing, there have been more 300+ footers sold over the past 3 years than in all of previous history.

Sources:
GE exit from boat lending bad, but won't sink sector
James B. Kelleher
Fri May 9, 2008 12:23pm EDT
http://www.reuters.com/article/reutersEdge/idUSN0651461020080509

WHY THE POWERBOAT INDUSTRY IS SINKING
Daniel Gross
Slate, Tuesday, July 18, 2006, at 4:55 PM ET
http://www.slate.com/id/2145890/

Even with pricey gas, travelers won’t abandon ship
Boaters and RV’ers don’t plan to retire their gas-guzzling toys this summer
Peter Greenberg
TODAYShow, 5:12 p.m. ET, Wed., May. 7, 2008
http://www.msnbc.msn.com/id/24508536/

T. Boone Pickens on Oil Prices, Trading, Wind Power

Posted by Barry Ritholtz on Monday, May 12, 2008 | 03:30 AM

in Energy | Video

On Bloomberg (via Paul), comes this very good video interview with T. Boone Pickens on Oil, Natural Gas, Trading -- and Wind Power.

Boone at 2008 Milken Conference
(click for video)

Good stuff.

Source:
Boone Pickens Says He Is Ready to Bet on Wind Power
Bloomberg, April 29 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8Roxzn8p.bI

Continue reading "T. Boone Pickens on Oil Prices, Trading, Wind Power"

Cognitive Surplus, Part II

Posted by Barry Ritholtz on Sunday, May 11, 2008 | 07:00 PM

in Psychology/Sentiment | Video

A few weeks ago, we discussed the Clay Shirky's concept of cognitive surplus.

Here's the original video of that discussion:

Comments, Trolls, Asshats

Posted by Barry Ritholtz on Sunday, May 11, 2008 | 05:00 PM

in Weblogs

One of the things I try to do with the site is maintain a high level of discourse between myself and the readers. As the traffic to the site has ramped up, we have attracted more political wankers, trolls, asshats than is conducive to intelligent conversation.

This post is a reminder as to how I deal with these folks, excerpted from our lovingly constructed Disclosures & Terms of Use.

~~~

First off, I attempt to read every comment that goes up. I read all email, but make no promises about responding.

All email addresses on comments are not published, but I do see them. Comments with real office email addresses (GS.com, etc.) get priority. Hotmail is frowned upon, as it has become a garbage address and refuge for spammers. Cowardly "anons" barely get glanced at. If I am unable to respond to you privately due to a bogus email address ("John@Yahoo.com") don't be surprised if you get a snarky answer in your own comment.

When posting your first ever Big Picture comment, I suggest you make it informative, interesting, on topic, and of of moderate length -- a paragraph or two. Lazy one sentence or one word comments typically get deleted. (First! gets you banned). Rambling 1000 word comments also get edited or deleted (*GYOFBM!). Comments on much older posts are also suspect.

I post comments in my own name. Anytime I edit anyone else's posts, I clearly mark it as such

~~~
BR: like this.

On occasion I will post someone else's email (or telephone call) as a comment in their first name ("Bob") or initials ("JB") -- because they can't. My circle of colleagues and friends includes many people who due to their employers compliance policies risk their jobs by posting comments.

I onlyon rare occasions will delete reader comments after the fact on their own request (Its been done less 5 times). If you post something that years from now is embarrassing, well, that's just too bad. Think twice before ranting like a jackass.

URLs in Comments: I encourage people to link back to other sources and sites in comments. However, keep it on topic. Hijacking posts with irrelevant links to unrelated subjects is the fats track to deletion and banning.

Feel free to put your own blog/site in the URL space when entering comments.

However, URLs in the body of comments that are merely self-promotional (i.e., do not add to the content) may be deleted, and their authors branded linkwhores. If I suspect you are merely posting short comments in order to enhance your Google score, I may leave the comment but delete your URL.

Want some of my Google Juice? Play by my rules.

Trackbacks: I encourage Trackbacks from non-commercial sites discussing the issues we chew over here. However, since trackbacks and comments can also be a way to raise your Google score, trackbacks that appear to be grabs for Google score will also be deleted. Commercial trackbacks will be invoiced as advertising.

Assignments: There are few things that I find more annoying than disingenuous rhetoric. "Why are you ignoring X? You must post on this NOW."

No, no I mustn't. I do not, and will not, under any circumstances, accept your homework assignments. They will be deleted, and your troll potential score will skyrocket. Instead, you fat lazy bastard, do some homework yourself. Then, post a clever observation and URL. Perhaps you will stimulate a conversation. Of course, you could always write your own blog, 'cepting your constant masturbation makes typing exceedingly slow.

Worse still are the emails asking for my opinion on this, or would you comment on that. In 90% of the cases, I have already covered the subject extensively (if only the emailer bothered to look). See the Google search box up top?

My apologies to the remaining 10%, but that's how it goes: Like so many things, a small group has ruined it for everyone else.

Trolls and Asshats:

This may be a free country, but The Big Picture is my personal fiefdom. I rule over all as benevolent dictator. I will ban anyone whom I choose from posting comments -- usually, for a damned good reason, but on rare occasions, for the exact same reason God created the platypus: because I feel like it.

I encourage a broad range of perspectives, philosophies, market positions, sexual orientations. Dissent is good. I want to see a debate of views, a battle in the market place of ideas ala Thomas Jefferson. You can post on nearly anything, so long as it is at least tangentially related to the topic at hand.

On occasion, I will "unpublish" a comment if I feel it is too impolite, harsh, ad hominem, inappropriate, or off-topic. Off-topic posts have been rising, and I have taken to unpublishing them en masse. Publish too many comments on a given post (3 or 4 relevant comments out of 30 are fine, 10 out of 30 is excessive). It takes me ~10 seconds to un-publish 10 comments. If you find yourself publishing way too many comments, consider this: This humble blog is my forum for expressing my ideas. Get your own damned blog.

Lately, I have been doing more than unpublishing nonsense posts -- I simply en masse mark them as spam, and kiss that IP address good bye.

I also have been reviewing the IP addresses of posters, and looking at all of their comments. If they either publish under multiple names (I love a comment and then a subsequent comment agreeing with themselves) or simply post alot of jacked up nonsense, they get the same treatment. They won't be missed.

Getting Banned for Life:

A few things that will get you permanently banned from commenting at The Big Picture. The fastest way to lose posting privileges is to misrepresent your host's complex and nuanced views in some inane bumper sticker comment.

Other fast tracks to getting banned:

- Knowingly posting false or malicious material;
- multiple postings under different names;
- generally engaging in troll-like behavior;
- misquoting your host/overlord;
- being impolite in the extreme;
- ad hominem attacks;
- being an asshole.

Right now, someone is reading this and saying to themselves "What does he mean, being an asshole?" If you wondered that to yourself, well the odds strongly favor that you yourself have sphincter-like qualities. Thus, you should consider it likely that you will be banned as a rectoid from posting comments sometime in the near future.

______________

*GYOFB stands for Get Your Own Fucking Blog

When Should the Fed Bailout the Economy?

Posted by Barry Ritholtz on Sunday, May 11, 2008 | 09:27 AM

in Credit | Economy | Federal Reserve | Inflation | Politics

Peter Bernstein, author of such books as Against the Gods: The Remarkable Story of Risk, has an interesting piece in the Sunday NYT, titled, When Should the Fed Crash the Party?.

"In the darkest days of the Depression, Treasury Secretary Andrew W. Mellon, one of the richest men in the United States, opposed any government action to stem the tide of plunging business activity and soaring unemployment. Instead, he urged a policy of supreme indifference.

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,” he said. “It will purge the rottenness out of the system,” he added, and values “will be adjusted, and enterprising people will pick up the wrecks from less competent people.”

John Maynard Keynes, for one, thought that prescriptions like Mellon’s were preposterous. The economist called those who held such views “austere and puritanical souls” who believed that it would “be a victory for the mammon of unrighteousness” if general prosperity were not “subsequently balanced by universal bankruptcy.” Keynes perceived too much good in prosperity to treat it as the enemy, and he revolutionized economic theory to prove his point.

Keynes won the argument, and government intervention to overcome rising unemployment and falling profits has been standard operating procedure forever after. Nevertheless, the debate over intervention is not ancient history. It replays in today’s headlines."

Its an interesting debate, but I read Bernstein as discussing the wrong debate. He is reviewing criticism of the treatment of the problem, namely, the Fed's clean up duties. But there is a debate brewing on preventative measures, also.

What makes this go round somewhat different is that the Fed's intervention was forced large numbers of people who were exceedingly reckless. Even by comparison to LTCM or the S&L crisis, the risk embracement was unusually widespread.

As we have seen, there is a cost to this.

This is more than a question of creative Federal Reserve intervention. Right now, the nation is only beginning a debate on several related issues -- including, ansd perhaps most importantly, regulation versus deregulation. If unrestrained financial engineering can lead to catastrophe requiring massive Fed intervention with great costs to the public (inflation, debt, etc.) than the "re-regulation" of the financial markets is a very likely outcome.

This is an important issue worth watching as the election season progresses . . .

Source:
When Should the Fed Crash the Party?
PETER L. BERNSTEIN
NYT May 11, 2008
http://www.nytimes.com/2008/05/11/business/11view.html