Dr. Johnson described second marriages as, "The triumph of hope over experience." So too is it with economic crashes, says Joe Nocera's column today. Excerpt:
"What does humanity ever learn about romance?" said James Grant, editor of Grant's Interest Rate Observer and the author of the forthcoming book "Mr. Market Miscalculates." Science, said Mr. Grant, is a discipline that builds cumulatively. Previous knowledge isn't forgotten or cast aside -- it is built upon. But finance isn't like that."People keep on stepping on the same rakes because money, like romance, is only partly an intellectual experience," Mr. Grant continued. "Money, like sex, brings out some thought -- but also much heavy breathing and little stored knowledge. In finance, the process is cyclical. Some people learn from their ancestors, but mostly they repeat the same mistakes. Thus it has always been and thus it will always be."
Mr. Grant's point, echoed by almost everyone I spoke to, is that it is not just the analytical part of our brain that deals with money, it is also the instinctive, emotional part -- what we like to think of as our gut. A lot of the time, our gut gets it wrong. And that is as true of high-powered investment bankers as it is of mom-and-pop investors.
Paul Slovic of the University of Oregon, an expert in the psychology of risk, pointed out that when times are good -- when markets are rising, for instance, and bankers are making millions trading their mortgage-backed securities -- "the sense of risk is depressed. You don't look as hard for warning signs." Robert Shiller, the Yale economist, said, "One thing we know about human behavior is that our memory is influenced by recent events."
Nocera goes on to say that the lessons being learned today will likely influence the economic thought and behavior of all of us for the rest of our lives. Well, we'll see.
I was startled by this passage at the end of Nocera's column:
Late on Thursday, right after that awful 679-point drop in the Dow, I got an e-mail message from someone I didn't know, a trader and blogger named Karl Denninger. "We have an extremely serious credit market dislocation about to occur -- like maybe tomorrow," he wrote. He asked me to call him.So I did. "There is a flight of money from the U.S.," he said breathlessly. "We need $2 billion a day in foreign capital to operate our government, and that has mostly come from China and the oil-producing countries. Now that money is leaving. We are going to have a complete lockup of the credit markets within 48 to 72 hours. Everybody is trying to push this off to the election. But we're not going to make it to the election."
I looked up Denninger's blog. He's excitable, to put it charitably. But is he wrong? Look at this:
Instead of taking action we have sat on our collective asses and allowed Congress to pass bailout after bailout - now our stock market is down close to 40% from the top with 20% of that loss coming in just over one week!We are facing a global DEPRESSION and the cut-off of essential goods and services in this nation if we do not stop this lunacy immediately.
Please understand - the TRUCKER who has a full load of food headed for your grocer REQUIRES commercial credit in order to fill his truck with diesel.
The local GAS STATION owner REQUIRES commercial credit to fill his underground storage tank.
The local CAR DEALER REQUIRES commercial credit to have cars - and parts - in his dealership. No credit, no car - and no car repairs.
The manufacturer over in China REQUIRES commercial credit (letters of credit from the buyer's bank) to be able to ship those goods to America, where you can buy them. If the bank over there won't take the LOC from the bank over here, suddenly you have no tires, DVDs and other similar products to buy.
IF THESE MARKETS DO NOT IMMEDIATELY UNFREEZE THE CONSEQUENCE WILL BE THAT FOOD AND FUEL, ALONG WITH ALL OTHER MANNER OF CONSUMER PRODUCTS, MAY NOT FLOW TO YOUR GROCERY STORE AND GAS STATION.
Think about that very carefully and then consider whether YOU can afford to sit on your ass for one more second, or whether you have an absolute NEED to get on the phone, fax, and whatever else RIGHT NOW to your elected and appointed representatives and, if you do not get in response that they will IMMEDIATELY resolve this matter whether you will vow to band together with every one of your associates and friends, form a group consisting of everyone in your local city or town, and call a GENERAL STRIKE, refusing to both work and permit commerce to be conducted UNTIL THE LIARS ARE FORCED INTO THE OPEN, DEALT WITH, AND THE SYSTEM IS ABLE TO CLEAR.
We are quite literally out of time. This freeze in the markets WILL continue around the globe unless something is done NOW.
When a blogger YELLS AT ME, I am disinclined to believe him. But then again, there's the ever-rational Jim Manzi's warning about how the real number to watch is not the sinking Dow, but the rising TED spread, which is essentially an index of how difficult it is to get credit. And remember from yesterday's post that a friend who is vastly better educated and experienced in the world of high finance than I imagine the urgent-minded Herr Denninger is did tell me on Friday morning that he believes our banking system is basically insolvent. I thought of that this morning while reading this eye-opening analysis (with chart) in the NYTimes, showing how much bigger the banking system is in various nations, compared to the national GDP. The difference between the two numbers in each case telegraphs the powerlessness of national governments to save their country's banking system in the event of a total collapse. Here's how the piece ends:
These figures will be meaningless if the governments retain the trust of depositors and creditors. "It becomes a matter of psychology," Mr. Prince said. If governments say the deposits are safe "and the market believes them, then they don't have to have any money to back up their promises."
It's all a confidence game, basically. Do you have confidence?
Do you have a choice?
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Playin' catchup - some links I found noteworthy on impact on personal purchasing power of the measures the public authorities have imposed on our private property:
Your 401k Plan - Breach of Fiduciary Duty? suggests taking your company's benefits manager to task if you are "up a creek without a paddle" like this lady found herself, see Karen deCosta
at | www.lewrockwell.com/blog/lewrw/archives/023453.html |
What We Learn From a Play-Money Auction how "liquidity infusions" enrich those players who receive the new money first, the bankers "The winners of this new money suddenly had more purchasing power than those who were not as fortunate, leaving the less fortunate in the lurch as they were consistently outbid for the remaining items by the new-money bidders" leaving others impoverished by subsequent waves of inflated prices (the opposite of 'trickle down' perhaps "scalded by steam" would apply?) see Bart Fuller
at | www.mises.org/story/3144 |
Australian TV comedian Shaun Micallef and "Tony Froth" explain the role of the Reserve Bank of Australia and how to control inflation, "Newstopia" aired 12 March 2008:
at | www.youtube.com/watch?v=NIfH0vY2ANA |
Wasn't central planning of the economy a key tenet of Marxism? If you've not lost half your retirement savings to the "market correction," you're about to lose the other half to currency deflation/cost-of-living inflation ... we're on the road to serfdom...
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