“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Wednesday, February 04, 2009

the prophets of baal in the zona

20So Ahab sent unto all the children of Israel, and gathered the prophets together unto mount Carmel.
21And Elijah came unto all the people, and said, How long halt ye between two opinions? if the LORD be God, follow him: but if Baal, then follow him. And the people answered him not a word.
22Then said Elijah unto the people, I, even I only, remain a prophet of the LORD; but Baal's prophets are four hundred and fifty men.
23Let them therefore give us two bullocks; and let them choose one bullock for themselves, and cut it in pieces, and lay it on wood, and put no fire under: and I will dress the other bullock, and lay it on wood, and put no fire under:
24And call ye on the name of your gods, and I will call on the name of the LORD: and the God that answereth by fire, let him be God. And all the people answered and said, It is well spoken.
25And Elijah said unto the prophets of Baal, Choose you one bullock for yourselves, and dress it first; for ye are many; and call on the name of your gods, but put no fire under.
26And they took the bullock which was given them, and they dressed it, and called on the name of Baal from morning even until noon, saying, O Baal, hear us. But there was no voice, nor any that answered. And they leaped upon the altar which was made.

27And it came to pass at noon, that Elijah mocked them, and said, Cry aloud: for he is a god; either he is talking, or he is pursuing, or he is in a journey, or peradventure he sleepeth, and must be awaked.

In the 2004 election in which the people elected the guy who’d stood by when the WTC was attacked and invaded Iraq because he fucking felt like it, I was bummed about the whole United States thing. However, “Even LI sees one 'ray of hope' in the election -- Tom Daschle, a leader of utmost smallness, a stunted mediocrity whose instincts have lead the Democrats from defeat to defeat, was defeated himself.”

That Daschle, that Great Fly minion, is not going to have his paws on the health care plan is excellent news. The story of his D.C. lifestyle is unsurprising. It is part of the political marketplace that the fucks in the Congress and the fucks in the Executive are bribed with the promise of future spoils.

But then there are those who are wired bribed. Like Larry Summers. Before he was appointed head of the board of Economic advisors, LI warned, we blasted, we pleaded in our little corner of the world that Summers press corps claque be ignored. Summers is a neo-liberal through and through – hence, his knee jerk reaction to the bank crisis has been that “government” is bad at running banks – why, then they would be run for political reasons! This, of course, is the kind of nonsense they churn out in Chicago, where the pretense is that the market is ‘non-political’. And so we non-politically get a collapse. Of course, all of that is horseshit. Politics is a market and the market is political. In fact, the claim that the market, whatever that is, is non-political is a political move, a way of saying that politics is irrational – or, in other words, that politics allows people without economic power to influence economic outcomes. Like, the common working people. Can’t have that!

Summers apparently has not noticed the Fed, nor Freddie Mac and Fannie Mae. The latter got in trouble because they… followed the market. They tried to follow the beaucoup bucks for the upper management racket so popular at clip joints like WAMU. They wanted, as Bob Rubin would say, to move into more risk – since it would pay off for shareholders. The lesson is not that banks shouldn’t be political, the lesson is that the semi-privatization of government functions hasn’t worked. Private is not good, public is not bad. Good and bad are determined by the scope of the function, its benefit to the social welfare, its cost, etc. At the present time, it looks like Summers and Geithner are actually going to continue Paulson-omics – the bank robbery, on a trillion dollar scale, performed by the banks – which is premised on the idea, laughable but still held by the deadenders, that after this temporary bump, things will go back to normal. Yes, those mortgages will be redeemed as an opulent population goes back to selling 300 thou McMansions to each other in the suburbs of Phoenix. You can tell that the crowd that doesn’t get it has the upper hand at the moment. My favorite stupor economist of the moment, much favored in the center-liberal mags, Edward Glaeser, popped his hand up and stuttered out the conventional wisdom yesterday with his lighthearted look at the Super Bowl, which included this howler:

“The fact that Phoenix has experienced a 42 percent housing price drop since its June 2006 peak is a sign of the area’s strength, not weakness. The high housing prices were always unsustainable, because of Phoenix’s capacity to build. Unrestricted supply meant the price boom was always a mirage. The decline in prices reflects the ability of Phoenix’s great growth machine to create inexpensive housing.”

Right. The growth machine created inexpensive housing. That’s so sweet! And they did it thinking they were producing expensive housing. The invisible hand, don’t you know.

When everything proves the market is self-adjusting, it is easy to be an economist. Anybody can do it.

The Glaesers multiply in the media, which is stocked full of the rancid and the wrong. It is one of the things I love about the NYT’s economix blog – it is like reading Judy Miller on Iraq. Read today’s Casey Mulligan commentary and laugh your ass off. This crew of the botched gives one clues about the zona and its long reach. The zona, after all, is not just a ghost wind, but it is conjured up by, or rather conjoined with, the spell of the magicians. Our magicians are all into that white magic mojo. They are the white magicians par excellence, who think backwards is equal to forwards. The winds blow higher, and the hurricanoes come, and the white magicians say, don’t worry! The weather is self-adjusting.


northanger said...


northanger said...

been meaning to ask, how bad would the credit/housing/whatever situation be if wages had kept up with profits? was excess profits part of the problem? was it fictitious capital?

Now, if you understood the idea [fictitious capital], you must read this: Any State intervention is totally inadequate to face the enormity of the problem produced by the over-accumulation of fictitious capital. The derivatives market expanded from a $100 trillion in 2002 to $516 trillion in BIS's estimation in 2007 or $585 trillion in other estimations! Comparatively all the real goods and services produced by all economies in the world annually, the global annual gross domestic product is less than $50 trillion, and the US annual GDP of approximately $13 trillion. It becomes crystal clear that no intervention by the State, by a central bank or by all of them in the world put together could ever control the tempest of this ocean of derivatives. Source(s): BIS International Bank for Settlements.

the only doc that came up on a "tempest" BIS search:

Kevin M Warsh: Financial market turmoil and the Federal Reserve – the plot thickens [PDF]

What's past is prologue; what to come, in yours and my discharge.
Shakespeare, The Tempest, Act 2, Scene 1

Thank you to the New York University School of Law for inviting me to participate in today's Global Economic Policy Forum.1

A little more than a year ago, I began to recount a story – already long-in-the-making – of the transformation of financial institutions driven by abundant liquidity in global financial markets.2 In those early chapters, one could not help but worry about the inherent risks to financial markets and the economy when the gloss of confidence wears thin, causing me to wonder aloud: "What happens when liquidity falters?"3 Let me briefly try to recount this tale over the last few quarters before offering some rough plot lines from which the balance of the story can be divined.

The sleepy complacency of a bygone era seemed rudely interrupted by a liquidity shock last August.4 A global margin call on virtually all leveraged positions began. As you know, the Federal Reserve found it necessary to begin to exercise its monetary muscles in unprecedented ways. The seasons darkened, and the plot thickened. New structured products and old financial institutions evidenced increasing signs of weakness. Some central banks, including the Federal Reserve, helped supply liquidity to where it was most in need. Financial market turmoil, partly as a result, was periodically placed in abeyance. Casualties of the liquidity contraction nonetheless appeared; some remained in the narrative for awhile, others were removed with great dispatch.

The narrative continued to morph through the first quarter of 2008. Central banks, while generally more comfortable remaining behind the scenes, took center stage with new tools and policy prescriptions. The script was rewritten so that product innovation flowed, but this time from the public authorities. Many private market participants receded to the shadows of the stage, some anxiously anticipating intermission.

What some originally read as a short story punctuated by a liquidity shock evolved into a longer narrative. Credit is threatening to displace liquidity as the primary antagonist. A credit crunch, particularly for small businesses and consumers, poses meaningful downside risks to the real economy. And market participants are struggling to assess the possibility that the narrative turns into a multi-act, macroeconomic drama.
. . . . .
Some believe the story of the current market turmoil began in August, and will end when the housing market stabilizes. But, in my view, the narrative actually began in a seemingly more benign time with underpinnings more fundamental than the value of the housing stock. Financial institutions and other market participants grew increasingly dependent on the extraordinary liquidity around them. When liquidity faltered, the weaknesses of the existing architecture abruptly revealed itself. A metaphor, perhaps, is instructive: Fish don't know they are wet. And they don't learn unless their memories are long or the water is gone. A new financial architecture, born of the forces of creative destruction, is early in the process of construction with the aid of the Federal Reserve and other public authorities. But for the new paradigmatic architecture to be enduring, market-supplied liquidity must come to predominate. To that end, I remain confident that financial institutions and financial markets will evolve to meet these challenges.

northanger said...

mr li, if you were one of those religious fanatics & larry "my conscience is clear" summers was your sister who just lost her virginity i do not have to imagine what you'd do to the poor girl. ironically, i see basic similarities comparing then CFTC Chair Brooksley Born's statement about OTC derivatives w/ Summers prefatory comments on women in science. the most telling remark Summers' made about Born's statement was that it upset the "fragile consensus" concerning derivatives — effectively cutting short (hindsight is 20/20) a necessary discussion. but mr li, the global financial hymen is broken &, well…


roger said...

Hey hey hey, North! Didn't we go over this when I published my list of 10 economists of the ladyyyyy persuasion! At the time, you told me that you did not have any patience for gonadal identity politics - which I could understand. But looking back, I still stand by my list, here: http://limitedinc.blogspot.com/2008/11/not-summers.html

Of course, you know that history would certainly have taken a turn for the better, in my opinion, if Obama had only made a linguistic fumble and appointed Donna Summer the head of the economics council. At least Donna Summer has a more extended view of economics than the irrepressible Larry.

northanger said...

i too still stand by no GIP. i also raise you one Volcker.