More understanding the Crash links

I’m uncomfortable with where Richard Medley headed – he blames ‘math geeks’ for the financial crisis. It’s uncomfortable, so that is why I share it. Not that I necessarily agree.

Esquire: Richard Medley: Why Is Our Economy in a Recession? – The End of America’s Capitalist Fantasy and the Shape of Banks to Come:

There’s nothing new about greed — when Chuck Prince, who then headed Citigroup, said in 2007, “As long as the music is playing, you’ve got to get up and dance,” he was just saying what every person who had any access to capital was thinking — but technology comes in waves, and it made this intersection of tech and the free market particularly toxic.

From time immemorial, we’ve had a financial system run mainly by men in their fifties and sixties that worked like this: Banks made money by loaning capital and making deals and taking the risk that they would not be paid back or that the deal would fall apart. That was simple enough. But then along came the math geeks who convinced many of us that instead of making loans and taking risk, we could make loans, “securitize” them, and then sell those securities to idiots in Europe and China.

When the old guys asked how that would work, they were shown sheets of paper with equations on them, and instead of saying, “I don’t understand one damn thing on this page,” they said, “So you’re sure it’ll work?”

That opened the door to an entirely new concept for banking: Let’s make loans to deadbeats and sell them off in “tranches” to idiots in Europe who don’t even know what a “tranche” is but like the idea that the S&P rates them highly and that they can make 6 percent a year on one with no risk. (Come here, little kitty.) As long as everyone looked the other way and stock prices kept rising, there was no pressure to do anything differently. Once the house of cards collapsed, all they were going to have to do was claim to have been blinded by science and point to the nerds who designed the strategy. (Which is exactly where Congress’s investigation is heading.)

National Press Club: Paul Krugman presentation

Washington Post Editorial: Closing the Gaps – The cautionary tale of AIG’s downfall:

In hindsight, it is clear that government regulation was lacking in the early stages of AIG’s CDS boom. As they were building it, AIG executives regarded their CDS business as virtually risk-free — “like catastrophe insurance for events that would never happen,” according to the Post series. This something-for-nothing aspect of the business should have been a red flag for the government — and for the ratings agencies, too. Yet another lesson of the AIG saga is the sheer difficulty of comprehending the myriad pathways of modern finance. The trick in regulating financial derivatives will be to preserve their efficiency-enhancing attributes while eliminating those factors that tend to concentrate systemic risk where it cannot be easily detected. AIG built up its CDS business in the interstices of governmental authority; those gaps can and should be closed without choking the arteries of capitalism.

Washington Post: The Crash: What Went Wrong – Washington Post series drilling down into where things went wrong – in particular – at AIG

NYTimes: The Reckoning – New York Times series covering the Crash.

ScienceBlogs.com: Corpus Callosum: The Last Christmas of the American Golden Age:

…The percentage of persons on food stamps now, is similar to that seen prior to Clinton’s welfare reforms. In other words, we’ve lost whatever progress we made.

…Personally, I don’t care a whole lot if some executive is sitting in a beach house in the Hamptons, sipping 1979 Krug Clos Du Mesnil, paid for by his or her fellow citizens. What bothers me is the number of food stamps that can’t be printed for the $5,700 that the champagne cost.

No, it isn’t really that. What bothers me is how the collapse of the economic system will lead to unnecessary starvation. Most will occur overseas, but some will occur here. American MDs will have to acquaint themselves with treatment of kwashiorkor.

Yes, economic disparity is inevitable. Economic cycles and crashes may be inevitable. But it was not inevitable that we would waste our last, best chance for sustainability.

Salon: The economy crumbled:

There were warnings along the way. Cassandras who feared that exotic financial innovation, specifically unregulated at the behest of both Democratic and Republican politicians, was setting the stage for a major systemic shock. But their voices were drowned out by a chorus of status quo defenders who told us, again and again, that financial innovation was making the world a safer, less risky place.

By slicing and dicing risk and redistributing it across the world, we were told, the chance that any one shock could destabilize the entire system had diminished. Even better, ran the argument, policymakers had learned the lessons of the Great Depression so well that there was no chance there could be another depression. One of Ben Bernanke’s claims to fame was as the proselytizer of the idea that we live in the age of the Great Moderation, an era in which recessions would be mild, growth stable and financial panics a thing of antiquity.

They were wrong. If there is one lesson to take from 2008 it is that the majority of analysts, economists and Wall Street financiers were flat-out wrong. Instead of redistributing risk to make us safer, they tied the whole world up into such a tightly wound ball of interconnections that when one piece of the system broke, the repercussions spread everywhere, immediately.

As a consequence, the self-satisfaction bequeathed to Americans by their victory in the Cold War and their unchallenged status as superpower has been irretrievably punctured and replaced by fear. The world seems far more fragile than it did a year ago. It baffles comprehension that so much could go so wrong so fast.

Previously here at paradox1x.org

The car of the future is here, but will it matter?

LATimes: – – 52 mpg and the darkness before dawn: On a test drive of a – – last week in West L.A. traffic, I managed, without much trouble, to get 52 mpg in mixed city-highway driving. Wait, so, has somebody invented the car of the future and didn’t tell us?

I’ve dashed out the name because people come with their own prejudices and probably won’t click.

A 52MPG FAMILY CAR. A car platform that Consumer Reports has graded as above average in quality, as an equal to any in the world.

But I bet you can’t get past who it is from.

Which is sad.

A stimulus plan that sounds worthy of real discussion

David Sassoon: Transition Team Weighing Blockbuster Housing and Stimulus Proposal:

The automobile industry was revolutionized with the invention of the hybrid engine that could capture and store energy that would otherwise go up in smoke. Now, there’s a counterpart invention for the housing market that extracts the energy wasted by buildings, and uses it to power economic recovery.

It takes the form of a plan that promises to save consumers $142.33 billion to $200.88 billion in energy costs and mortgage payments over a five-year period, significantly reducing the risk of mortgage failure while increasing disposable income and creating millions of new jobs.

The plan of action is now in the hands of the Obama transition team and could rewrite the book on how the stimulus package gets put together. It’s called the 2030 Challenge Stimulus Plan and it was authored by Ed Mazria and his team at Architecture 2030.

via Doc Searls

The safety net is no longer

Inquirer: What about the safety net? ‘A lot of people are falling through.’

As unemployment is failing, Welfare rolls grow for first time since the 90s.

Horrible case in point, reported in the LATimes, is the story of the Himmel family – now living in a SUV – their daughter, Destiny, 16, was diagnosed with leukemia.

Student loans can be dangerous

I need to quickly secure a student loan, and it looks far more complicated and dangerous than it should be. LATimes: Student loans turn into crushing burden for unwary borrowers:

…Hickey knew she would need loans to complete her degree, so she went to the campus financial aid office as a freshman. After she filled out paperwork, Brooks Institute set her up in a loan program administered by Sallie Mae, the nation’s biggest student lender.

Sallie Mae was chartered by the federal government in 1972, and most of its business is in issuing federally insured student loans. But while it may appear to be a quasi-government agency, it is in fact a for-profit company whose stock trades on the New York Stock Exchange.

Hickey ended up with $20,000 in low-interest federally guaranteed loans issued by Sallie Mae, and $120,000 in higher-interest private loans issued by Sallie Mae.

Hickey said no one explained the difference to her.

“The financial aid officer just said that my federal loans weren’t enough to pay the tuition, but that was OK because they had these great alternative loans,” Hickey said. “They made it sound so good that I didn’t ask that many questions.”

Tim Halsey, vice president of finance for Brooks Institute, declined to discuss Hickey’s case directly, citing federal privacy laws. But he said the school’s financial aid officers take great pains to explain the differences between loans and to guide students to the best deals.

“It is really to our advantage to get the loans and interest rates as low as possible,” Halsey said.

“My motivation is to get that person to come to the school, if that’s what they want to do. If I can get those costs as low as possible, it benefits us both.”

Discussion at Kevin Drum’s blog.

This loan mess is made even scarier by the fact that college costs are rising faster than income. According to the National Center for Public Policy and Higher Education, college tuition and fees, adjusted for inflation, rose 439 percent from 1982 to 2007. Median family income rose 147 percent during the same period.

Tech layoffs soaring

The troubles in the economy come closer and closer to home. Via TechCrunch: “Tech Layoffs Surge Past 100,000” – but hey, at least you’re not a journalist or auto worker – because if you were – it would be your fault right? (without context – that sarcasm wouldn’t make any sense – I don’t mean that AT ALL – but some pundits seem to think that’s the God’s honest truth). The economy is hurting everyone across the board far and wide. In an age where information flows as freely as air – this crash wasn’t avoided and solutions are not forthcoming from our common conversation.

Then again, we can just blame it all on the invisible hand of the economy, right?

NPR is in trouble

Blame it on changing technology, blame it on the journalists, blame it on shortsighted management, blame it on missing that oncoming glacier, blame it on the economy (everyone is WAY to concerned with throwing stones right now if you ask me) everyone is feeling pain right now and many institutions people rely on are being shook.

NPR: NPR Cuts Jobs, Cancels Programs.

Growing demand for Salvation Army services

Kevin Barbieux, “The Homeless Guy”, takes note of the growing lines for feedings from the Salvation Army.

The Salvation Army was there for my family when I was young. As a host for my Cub Scouts pack. As a place we could afford to shop. As a provider of a Santa Claus that would visit us to deliver toys when Mom didn’t have the money to afford to buy them.

So when you see those people ringing those bells and asking for money, realize, the Salvation Army helps. More than you can imagine.

Understanding the economic crisis

Lots of material out there to read to understand what is going on. Here are some of the more interesting ones I’ve found:

The Money Meltdown – a set of links that attempts to summarize the situation and how we got here.

Slate.com: Subprime Suspects: Puts to rest the idea that poor homeowners are somehow to blame for this.

60 Minutes: A Look At Wall Street’s Shadow Market

Megan McArdle: How did it all happen? – some cognitive science behind this.

Forbes: The Economics of Trust – Capitalism requires trust. Break the foundations of trust between people and institutions and something like this is inevitable.

And the best two explanations I have heard so far were on This American Life: The Giant Pool of Money and Another Frightening Show About the Economy

For your average 401k investor – what can you do about today?

The news in the newspaper media and creeping on to TV news as ‘breaking’ (this was building for a while), is what sounds like real trouble in the investor markets.

If you were an average 401k investor, what should you do to try and save your retirement money?

My instinct, since I am not retiring any time soon, since I have a fixed rate mortgage and manage my debt responsibly, is to stand pat. But I wonder if that is the right path if you are about to retire? Or if you rely on your investment income.

Don’t look to the policial blogosphere either. They were too busy talking about ‘lipstick on a pig’ and ‘ominious photos’ to have discussed this. There are financial centered blogs – but as with all media – we subscribe to what fits our communities of interest. Hopefully you were subscribed to a good finance blogger. Not me. Wish I was.

Shout out to Metafilter, while a general interest link community, there have been a few discussions over the years indicating issues in the economy leading to today.

Update 7:01AM: Bloomberg TV just called it “the biggest financial shakeup since the Great Depression”.

Anyways, here we go.

Boing Boing: “America’s financial system was shaken to its core on Sunday.”

Wall Street Journal: Crisis on Wall Street as Lehman Totters,
Merrill Is Sold, AIG Seeks to Raise Cash

NYTimes: 5 Days of Pressure, Fear and Ultimately, Failure

NYTimes: Bids to Halt Crisis Reshape Wall St. Landscape

Metafilter: Brokergeddon.

Interesting Economy Blogs:

Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong

The Simple Dollar

Get Rich Slowly

self-evident.org

nacked captialism

Angry Bear

Know more? Especially those that have advice to handle this economic situation that is occurring?