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a useful article on market failure and pyramiding house prices

“ [...] If they gambled and won, they could walk away with a share of the profits. If they gambled and lost, the investors would bear the consequences. It was almost as if the entire financial system was converted into a giant casino in which the system was rigged to guarantee those running the games huge returns, at the expense of the players [...] .”

“ Perhaps the worst problems--like those in the subprime mortgage market--occurred when non-transparent fee structures interacted with incentives for excessive risk-taking in which financial managers got to keep high returns made one year, even if those returns were more than offset by losses the next. Behind the subprime crisis were mortgages designed to encourage repeated refinancing of homes--a pyramid scheme that generated billions of dollars in fees for the mortgage company as long as home prices continued to soar. It was inevitable that the bubble would break. But, by then, the profits that had been pocketed would make these financial wizards secure for life--or, at least, that was their hope.”

The last paragraph would be better replaced with one on proposed legal rules/sanctions. For example, much of bonuses only paid after, for instance, five years.

[Linked by the Limbic blog.]

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the web address for this article is
http://www.abelard.org/news/economics0805.php#market_failure_290908

there’s no money out there - like hell there ain’t

“JPMorgan Chase & Co., which bought most of Washington Mutual Inc. yesterday, raised $10 billion in stock sale today.”

“JPMorgan is taking on $176 billion in mortgage-related assets and writing down the value of it and othere portfolios by about $31 billion, the company said. The bank will make a one-time payment of $1.9 billion to the U.S. Federal Deposit Insurance Corp. as part of the deal.”

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the web address for this article is
http://www.abelard.org/news/economics0805.php#funding_usa_270908

monopoly money versus real money

What happens to the auction price of gold bars if you give idiots monopoly money and tell them they can bid against people with ‘real’ money?

“The high-water mark of US financial hegemony was passed several years ago, when both government and consumers became addicted to cheap debt to pay bills they could not afford. The problem was, too few seemed to notice. The richest nation on earth carried on borrowing and spending until the fantasy morphed into madness: Ninja debtors - No Income, Jobs or Assets - were lent money by wannabe alchemists to buy homes at unfathomable valuations.” [Quoted from telegraph.co.uk]

And after they’ve ‘won’ the auction, a few weeks later comes the bailiff saying, “Now I want my money back with interest, and the gold bar”.

That’s about the way the mafia hooks you.

monopoly money part 2 - too amusing for added comment

“[...] I'd like to meet the PhD who strode into his bank's boardroom and announced: "Great news. We can lend fortunes to people who have no hope of repaying. Better still, it doesn't matter if the collateral is worth less than the loan. From this, we'll become millionaires." ” [Quoted from telegraph.co.uk]

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the web address for this article is
http://www.abelard.org/news/economics0805.php#monopoly_money_170908

hidden away - china engages in massive monetary expansion

“China cut its one-year lending rate by 27 basis points and lowered the reserve ratio by 1 percentage point at some of the banks, according to People's Bank of China.”

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the web address for this article is
http://www.abelard.org/news/economics0805.php#china_economics_150908

and you wonder why america is so far ahead of the uk’s socialism

“Market forces are at play, too. Mr Rogers says his 2,100-square-foot house - just under the average for new homes in America - cost $75,000, or 23%, more to build impeccably green than it would have othere wise. He received $35,000 in rebates and incentives from state and federal governments, and he expects to recoup the rest in avoided energy costs within five years. Given the recent spike in energy prices, it may not take that long.

“Systems, like Mr Rogers’s solar panels, that enable homes to generate their own electricity may get a lot of attention, but finding ways to reduce the need for energy in the first place is just as important. Green homes start with a sealed envelope: places where air can flow between the interior and exterior are carefully blocked. Sustainable Spaces, a company in San Francisco that assesses the environmental performance of houses, measures how airtight a home is using a device called a "calibrated blower door" - an adjustable barrier that suspends a powerful fan in a blocked doorway. Matt Golden, the company’s founder, says that a typical home exchanges around 35% of its air with the outside each hour, whereas carefully sealed "green" homes rate around 7%. (This correspondent’s Victorian home scored an abysmal 80%.)”

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the web address for this article is
http://www.abelard.org/news/economics0805.php#building_costs_usa_100908

2008 2nd quarter world housing index

A press release, probably an early release of the full report.

“Knight Frank Global House Price Index

“Key Highlights:

  • Global house price inflation continues to slow, with annual growth standing at 4.8% during Q2 2008, down from 6.1% in the previous quarter
  • Lithuania, Denmark and New Zealand have joined the group of countries where house prices are now falling quickly
  • Prices in Latvia continue to plummet, with values now 24.1% below the same time last year, the steepest drop in the index
  • For the fourth consecutive quarter Bulgaria tops the index, with growth of 32.2% over the year
  • Slovakia, Russia, the Czech Republic and Hong Kong all recorded strong annual growth of over 25%”

The complete table is at link above.

Here is a useful page with links to several international housing research reports.

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the web address for this article is
http://www.abelard.org/news/economics0805.php#housing_index_030908

amazing what a motivator profits can be - airline industry goes on a slimming diet

Who will be the first to dare charge fatties by weight!

  • “One airline saved over 17 gallons/year per pound of weight per airplane after shedding inflight phones, ovens, excess potable water, and some galley equipment on an older fleet
  • In removing seatback phones from its MD-80s and B737-400s, anothere airline shed 200 pounds per airplane, translating into 3,400+ gallons saved annually
  • Alaska Airlines indicated in March 2004 that removing just five magazines per aircraft could save $10,000 per year in fuel; also, the airline has reduced the weight of catering supplies
  • Air Canada considered stripping primer and paint from its 767s to save 360 lbs. per plane”

More at link above, as ever.

Marker at abelard.org

And where do the weightier passengers live?

Illustrating the fattest states in the USA, 2008. Image: calorielab.com

the web address for this article is
http://www.abelard.org/news/economics0805.php#diet_planes_190708

how america and britain handle a credit crisis

Context: Fannie Mae [Federal National Mortgage Association (FNMA)] and Freddie Mac [Federal Home Loan Mortgage Corporation (FHLMC)] have both run into heavy financial problems. The US government is giving them financial support. They own or guarantee nearly half of the USA’s $12 trillion in mortgage debt.

A guarantee is not an expenditure. It is merely a risk, and a rathere distant risk at that.

The UK’s Northere n Rock was nationalised when it got into trouble.

‘New’ Labour caused the Northere n Rock problem by errors made during the cack-handed partial independence of the Bank of England.

The USA runs a much more free economy, though the Clinton administration put into place pressures to enforce foolish lending to the impecunious.

Run a free economy as (partially) in the States, and free market methods are the preferred options. Run a socialist society as in the UK, and every problem becomes more government interference.

‘New’ Labour is the cause of the problems in the UK. The lesser problems in the USA, in the area of sub-primes, date to Clinton socialists.

However, Bush has failed monumentally in conservation and preparation beyond the oil age. Bush is also heavily subsidising his oil friends and protecting them. But Bush has a planet to run, whereas Gordon Brown the Clown is meddling with a parish council.

And work for the less able is running out.

Modern problems will not be solved with sticking plaster. That merely puts off the problems, and there eby make them worse.

The USA has a government cartel in money, that is a socialist money system. Socialist money is a means of political control. It is not a free market.

Socialism encourages people not to work.

The USA keeps more of a balance. Not working is not an easy option in the States, because the socialist disease is not so far gone.

The social farmers in the USA who control the money system also have attitudes of patronage/noblesse oblige. Thus, they seek to ease the stress on the ‘poor’, without encouraging them to degeneration.

Socialism encourages degeneration. That is what ‘New’ Labour does.

It is what the right in the USA tries to avoid.

The prime alternatives to democracy are anarchy, or dictatorship by one form of loon or anothere . Socialism sets up the stage for dictatorship as society breaks down.

Healthy democracy depends on balances. Britain is not a full democracy. The USA is a far more advanced democracy. You cannot expect to understand the USA with a socialist UK perspective.

Even France is a more advanced democracy than the UK.

Britons live on a small offshore island, a partial tax haven. Britain is tolerated as a semi-dependency of the USA.

As with a place like Guernsey, there e are two markets: a protected one for the proles, and the houses on the hill for the farmers.

The headquarters of the British Empire has moved to Washington.

‘Bailing out’ the banks is a part of protecting the proles. Money at that level is about power, not about anothere TV set or a holiday in Majorca.

Bush has been acting correctly to run the Empire. The Clown is not even up to running the parish council.

This is not about ‘bailing out the banks’. This is about minimising the damage to the sheep in such a way that they do not become complacent. It’s about scaring the sheep enough without putting an excessive number on the streets.

The people who own the banks (shareholders) will take their hits. Many of the people who run the banks will ‘retire’. They will have suffered some Darwinian selection.

In Britain, the sheep will be encouraged by ‘New’ Labour and the ridiculous Clown to be even more dependent.

related material
sunday afternoon - panic in nu-labour treasury chicken coop
bubbles, debt, borrowing and inflation in the uk
on money - northere n crock
the mechanics of inflation: The great government swindle and how it works
the sum of a geometric sequence: or the arithmetic of fractional banking

the web address for this article is
http://www.abelard.org/news/economics0805.php#us_uk_credit_management_140708

on oil prices

Oil is not cheap fuel. It has long been kept too cheap through subsidies.

The world is (currently) becoming rapidly more wealthy.

You will have to pay more for energy, but that more will become a lower proportion of the growing wealth. That growing wealth is primarily driven by the USA. The quicker we can see the end of the filthy fossil fuel age, the better for us all.

The USA have long been oil rich. That is changing and the faster the USA adjusts, the better for everyone - especially for the USA.

the web address for this article is
http://www.abelard.org/news/economics0805.php#oil_price_130708

equality pay - a fundamental economic error

“[... Harriet Harman’s Equality] Bill which allows employers to discriminate in favour of women and ethnic minorities, and forces them to reveal salary structure details to highlight the pay gap.”

Her ‘equality’ rhubarb is economic idiocy and, if it has any real effect, it is likely to see less women employed, or the jobs offshored.

On average, women are less able, less experienced and less reliable in the workplace. Differential pay allows them to compete.

It is a fundamental and elementary economic error to suppose ‘equal’ pay legislation helps those on lower wages. It does not, it harms them. With differential pay anybody can get employed, for they can compete on price, thus raising themselves up via experience and a good employment record.

No sane employer will employ people who are worth less for equal pay, rathere than those worth more. No sane employer will employ an overpriced group when anothere similarly qualified group are offering themselves on the market at lower rates.

Harman is an ignorant fool, just like the rest of ‘New’ Labour.

She is making it harder for females to compete, not easier.

the web address for this article is
http://www.abelard.org/news/economics0805.php#equality_pay_300608

are gas (petrol) prices really so inelastic?

Present prices in the UK are around $8.60 per US gallon.

“Petrol sales fall 20pc as drivers feel the pinch”

“British motorists are shunning their cars following record rises in the price of fuel, the International Energy Agency said on Tuesday.

“The IEA, a widely respected body, said that "British motorists are clearly driving less" following a doubling in crude oil prices over the past year.

“Drivers are shunning their cars following record rises in the price of fuel The drop in demand for petrol among British drivers is greater than that being experienced in othere countries

“Petrol retailers have disclosed that fuel sales dropped sharply over the past few weeks and the latest figures appear to show that demand for petrol in Britain has slumped by as much as 20 per cent over the past 12 months.”

“The cost of a litre of petrol has increased rapidly from 92.8p in March 2007 to 106.8p in March 2008 and to almost 117p today.”
(11 June 2008)

the web address for this article is
http://www.abelard.org/news/economics0805.php#petrol_prices_130608

rumbling on: brown the clown’s errors leading to the northen crock failure

“Northere n Rock breached capital rules six months before its collapse, yet failed to tell shareholders and continued to be given favourable "light touch" treatment by financial regulators, it emerged yesterday.”

It is clear that Mervyn King, the current Governor of the Bank of England, knew what should be done.

It is clear that Eddie George (the previous B.o.E. Governor) also knew his onions, and had balls. Gordon Brown the Clown replaced Eddie George. Mervyn King trims.

As far as I am concerned, the main blame lays primarily in one place, but who ever expected any socialist to have intelligence or ethics. It was Brown the Clown who set the pseudo-inflation rate. It was the Clown who appointed/controlled the current Bank of England board. The ongoing UK economic problems of house price boom/bust and huge personal indebtedness are Gordon Brown’s responsibility.

An inflation rate of 2-3% is considered optimal. Gordon Brown set a pseudo-inflation rate that ends nearer 10% [see Perception of value, and inflation]. Brown (and now the finance minister he appointed, Alistair Darling) sets the terms, that is: his fake inflation rate is used in place of meaningful data.

The Clown has (naturally) made a complete pig’s ear of the economy, where short-term advantages for socialism = long-term failure for society.

there e is no blame anywhere else, unless you consider anyone with balls would refuse him as an employer. And the Prime Minister is chosen by fellow Parlimentary members, no doubt looking to their future prospects and comfort.

related material
sunday afternoon - panic in nu-labour treasury chicken coop
bubbles, debt, borrowing and inflation in the uk
the mechanics of inflation: The great government swindle and how it works
the sum of a geometric sequence: or the arithmetic of fractional banking

the web address for this article is
http://www.abelard.org/news/economics0805.php#browns_northere n_crock_errors_010508


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